OCI Rewrite Complete

 I just wanted to drop a note that states for all intents and purposes the November 10, 2023 post was the last post involved in the rewrite of the Preliminary Specification. We began rewriting our product on November 1, 2022 due to Oracle CloudWorld 2022 conference contents. We were impressed with the impact it had on our ERP product and the incremental value it brought to the North American oil & gas marketplace. Further evidence of this impact was presented at the Oracle CloudWorld 2023 conference. We also wrote our Operations Management module. To coordinate these new technologies, data, and information with the Joint Operating Committee to ensure that oil and gas producers have a dynamic, innovative, accountable, and profitable operating environment. 

I am pleased to be involved in bringing this opportunity to the industry at this time. I feel the industry needs many changes to its administration, accounting, operations and management in order to ensure that we provide a profitable operation to producers' shareholders and the lowest cost oil & gas products to energy consumers. This can only be accomplished through a common sense approach that is comprehensive in nature. The short, medium and long term issues affecting the oil and gas industry are the focus of our approach. There is critical and difficult work to do. The Preliminary Specification provides a viable vision for people to follow. It is a comprehensive plan based on a workable business model that organizes the overall industry. An approach to this opportunity that deals with the issues we will fail in far more than just the oil & gas industry.

Today the Preliminary Specification stands at 14 modules. Although there has been a reduction in the wording for clarity purposes, the addition of the Operations Management module, Oracle automation and Generative AI has pushed the total word count to 383,492. It is comprehensive in nature and a lucid description of how our business model resolves the most pressing oil & gas challenges. More than anything however, is our commitment to our user community and user driven ERP software development. It is the only way to build a quality product, and quality will be the only product that People, Ideas & Objects delivers.

OCI Designing Transactions

 One area of the Accounting Voucher where the Preliminary Specification is different is the concept of designing transactions. We should define what we're discussing. Where accountants will spend their time in the future is designing transactions and leaving the processing, mostly through automation as a result of the design of the transactions, to computers. If you’ve read the Preliminary Specification you’ll be aware of the shift towards increased reliance on the marketplace as an organizational method. You'll also understand how the Joint Operating Committee interacts with the market and the producer firm. It will be with that understanding that we can begin to understand the concept of designing transactions. So let us begin with a simple description of the transaction's makeup. From Harvard Professors Carliss Baldwin and Kim Clark’s paper “Where do Transactions come from? A Network Design Perspective on the Theory of the Firm.”

In summary, objects that are transacted must be standardized and counted to the mutual satisfaction of the parties involved. Also in a transaction, there must be valuation on both sides and a backward, compensatory transfer - consideration paid by the buyer to the seller. Each of these activities - standardizing, counting, valuing, compensating - adds a new set of tasks and transfers to the overall task and transfer network. Thus it is costly to convert even the simplest transfer into a transaction.

Taken as a whole, standardizing, counting, valuing, and paying for transfers give rise to what we call “mundane transaction costs.” pp. 12 - 13.

Let's use a scenario where a group of producers have several producing wells of natural gas with some liquids production. They are situated next to a large gas plant that processes their gas in exchange for the liquids and markets their gas on the spot market. In this scenario we are evaluating these properties from the perspective of implementing them into the Preliminary Specification. We begin by analyzing the production accounting elements in the Accounting Voucher with the related Production Accounting Service Providers. Production Accounting Service Providers assess their fees based on units of work incurred during a production month. This is for any of the many processes involved and however our user community configures the software during the development of the Preliminary Specification. At each point they’ll assess a fee for their service based on transaction design principles. Our user community designs their work flow from a transactional perspective. Professors Baldwin and Clark.

The user and producer need to deploy knowledge in their own domains, but each needs only a little knowledge about the other's. 

If labor is divided between two domains and most task-relevant information hidden with each one, then only a few, relatively simple transfers of material, energy and information need to pass between the domains. The overall network structure will have a thin crossing point at the juncture of the two subnetworks. Furthermore, because the transfers are relatively few and not complex, mundane transaction costs will be low at the thin crossing point. Thus, other things equal, thin crossing points are good places to locate transactions. p. 15.

And

Placing a transaction - a shared definition, a means of counting, and a means of payment - at the completed transfer point allows the decentralized magic of the price system to go to work. p. 19.

Again if there is no production there is no basis for the Production Accounting Service Providers billing. Fulfilling the Preliminary Specifications' decentralized production model objective. This scenario shows how the Production Accounting Service Provider needs to design their transactions to produce the desired result. It also shows how to conduct their service and automate their billings. Additional transactions related to gas production, sales of natural gas, royalties, and payment of the processing fee are designed into an Accounting Voucher. This is the role of the Accounting Voucher for the producer firm and the Joint Operating Committee. Automation of innovative oil & gas industry business processes through transaction design. A production process creates an information unit that triggers the appropriate service providers to conduct their operations on the Joint Operating Committee's behalf.

The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on... Frederick Hayek (1945) The Use of Knowledge in Society

The Accounting Voucher has a “Transaction Design Interface” that provides a worksheet for accountants to design transactions. There is a defined process for analyzing these transactions. We will discuss that as we develop the Preliminary Specification. It is worthwhile to note at this point that each Accounting Voucher is used as a template for subsequent months. So once a transaction is designed, it will be reused, and built upon through the implementation of it as an Accounting Voucher template. This will provide the automation invoked each month of production which is supervised through the service provider organizations.

The role of the Accounting Voucher in determining the source of the market or the firm as the originator of the transaction is minimal. However, it ensures the costs of these transactions are minimal. If there was a simple way to describe this purpose of designing transactions it would be as a tool to coordinate the firm's or Joint Operating Committee's use of the market. This conceptually falls between transaction costs economics, capabilities, transaction design and automation. All areas Professor Richard Langlois includes in his research. We have also used Professor Carliss Baldwin for her transaction design work. Professor Richard Langlois in his paper "Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization."

However, a new approach to economic organization, here called "the capabilities approach," that places production center stage in the explanation of economic organization, is now emerging. We discuss the sources of this approach and its relation to the mainstream economics of organization. p. 1.

And

"One of our important goals here is to bring the capabilities view more centrally in the ken of economics. We offer it not as a finely honed theory but as a developing area of research whose potential remains relatively untapped. Moreover, we present the capabilities view not as an alternative to the transaction-cost approach but as a complementary area of research" p. 7.

The Accounting Voucher module of the Preliminary Specifications transaction design takes the accountant away from the benign scorekeeping role to the role of active participant in the operation. One that looks at the market from the point of view of how best to coordinate its various elements. This will provide the greatest added value to the firm or Joint Operating Committee. In Richard Langlois' “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization"

A close reading of this passage suggests that Coase's explanation for the emergence of the firm is ultimately a coordination one: the firm is an institution that lowers the costs of qualitative coordination in a world of uncertainty. p. 11.

And this is perhaps one of the most relevant considerations of the work we do here in People, Ideas & Objects, our user community and service providers. Is the realization that each producer firm and each Joint Operating Committee will be unique. That due to their makeup they’re going to be different in material ways. Innovation will have a dramatic impact on how it is measured against each firm or Joint Operating Committee. Specialization and the division of labor, and other aspects of the changes imposed on producers will lead to broad diversity of approaches. The approach will be anything but cookie cutter. However, that does not preclude it from the process of standardization.

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 cooperating individuals. p. 17.

Therefore, according to Professor Langlois' research, controlling transaction costs to ensure they are immaterial to firms and Joint Operating Committees. That is to say that they will be the same in all instances. And People, Ideas & Objects assert they will be irrelevant due to standardization through Information Technologies. These costs of coordinating the market will differentiate between firms and Joint Operating Committees. Making the Accounting Voucher module a critical tool in offering the producer firm the most profitable means of oil & gas operations.

... while transaction cost consideration undoubtedly explain why firms come into existence, once most production is carried out within firms and most transactions are firm-firm transactions and not factor-factor transactions, the level of transaction costs will be greatly reduced and the dominant factor determining the institutional structure of production will in general no longer be transaction costs but the relative costs of different firms in organizing particular activities. p 19.

We have been discussing Accounting Vouchers' “Transaction Design Interface” and its purpose as a tool to coordinate the use of markets. We want to ensure that market coordination efforts are consistent with the firm's or Joint Operating Committee objectives. They don’t conflict with the objectives of those who initiate work in Research & Capabilities or Knowledge & Learning or other modules. As we can see coordination through the Accounting Voucher of the Preliminary Specification is focused on the business end of the transaction, not on the operational side. It is a follow-up process invoked once the appropriate qualified vendor has been selected by operations.

The first question most people will have is why are we concerned about the coordination of the markets in the Accounting Voucher? In a comment made to the editor of Capitalism and Society, Professor Richard N. Langlois wrote this comment in response to an argument made by Professors Giovanni Dosi, Alfonso Gambardella, Marco Grazzi and Luigi Orsonigo (2008). 

Here again, I think the problem is one of conceptual imprecision. It is perfectly common, and often unobjectionable, to contrast a market and an organization, that is, to contrast the institution called a market and the institution called an organization (such as, notably, a firm). But the opposite of “organization” in the abstract sense is not “market” but disorganization. More helpfully, the opposite of conscious organization is unplanned or spontaneous coordination. In this sense the market-organization spectrum (and similar spectra one could imagine) are arguably orthogonal to the planned-spontaneous spectrum. One could well wonder, as I have (Langlois 1995), whether large organizations do not in fact grow far more as the unplanned consequence of many individual decisions than as the result of the conscious planning of any individual or small group of individuals. And it is certainly the case that, as Alfred Marshall understood, both firms and markets “are structures for promoting the growth of knowledge, and both require conscious organization” (Loasby 1990, p. 120). p. 10.

In today's globalized economy, there are large distances and other considerations between vendors and producers. Leaving market coordination to “spontaneous order” is asking too much of human ingenuity. Particularly with the focus of the industry on a further division of labor and specialization, where the risk and reward of oil & gas operations are so substantial, market coordination or transaction design will be a critical and necessary task to be carried out. Operations may involve more people. Once again it is from a business point of view that we are attempting to influence the operation. How will transactions and business be captured in such a manner that the firm and Joint Operating Committee incur the lowest possible costs from the most efficient methods of these business transactions? From Professor Richard Langlois Economic Institutions and the Boundaries of the Firm: The Case of Business Groups."

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

And

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 labor” is the continual subdivision of that labor (Smith 1776, 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

We’ve seen over the past several decades that producer firms lack the speed and capacity for change. People, Ideas & Objects asserts this is attributable to producer officers and directors' desire to maintain low accountability levels through poor ERP systems. Today organizations are defined and supported by software, and most particularly ERP software, and they are therefore constrained by them. The Preliminary Specification has chosen the market to deal with this issue instead of cultural difficulties of change and the firm's historical performance as the other choice. There needs to be a means to affect the producer firms' performance trajectory. Specialization and labor division have been the only proven methods to build economic value since 1776. There is a way to access this through the market, which disrupts the culture of the producer firms. A culture that counters profitability and must be dismantled. The addition of transaction cost economics and these tools will enhance the transition. This will facilitate the performance trajectory necessary to achieve profitable energy independence in North America.

The question as to which, the firm or market, to use as the means of production in oil & gas is academic. Geographic and technical diversity is necessary to operate in the North American oil & gas marketplace. This is due to the many levels and types of operations a producer could specialize in, even in today’s market. The answer has always been the market. There is significant conflict and contradiction in the relationship between producers and the service industry. This is due to the treatment the service industry has been subjected to over the past several decades. It is suggested that producers will need to make a deliberate effort to remediate and rebuild the capabilities and capacities necessary to provide profitable energy independence in North America.

The starting point of this rebuilding process for our user community is as follows: If we recall in the Resource Marketplace module the vendors and suppliers maintain their own contact data. Within that data is their key personnel which includes their field staff. They should also include their key business personnel for the purposes of the “Transaction Design Interface” to collaborate on these interfaces. In addition, their financial data and billing information, as well as other critical data and information. This will help the producer firm or Joint Operating Committee efficiently coordinate and process transactions. Lastly a collaborative interface should be provided for everyone within the Accounting Vouchers vendor pool to discuss how the transaction is designed and the template that is used by the specific vendor. Obviously, our software development for the service industry will begin here.

OCI Revenue Model

 Our Value Proposition

People, Ideas & Objects our user community and their service providers value proposition is that we provide North American oil & gas producers with the most profitable means of oil & gas operations, everywhere and always. We do this by developing, providing, implementing, supporting and defining within the Preliminary Specification a business model and vision that enables the producer to be more profitable than in any other business model. Our value proposition is quantified over the next 25 years in the range of $25.7 to $45.7 trillion. This incremental value is compared to oil & gas producers' current "corporate" business model. The difference between average oil & gas prices currently realized vs. actual exploration and production costs determined by accurate and timely accounting constitutes the value of this ratio. To earn "real" profitability, producers need higher commodity prices. From Professor Richard N. Langlois' recently released book, The Corporation and the Twentieth Century: The History of American Business Enterprise.

To economists, a “bubble” occurs when the prices of assets diverge from the “fundamentals”: when people do not trade strictly in light of a careful and sober assessment of the prospects of the firms issuing the stock, including the prospects for dividends, but rather trade purely in expectation that asset prices will continue to go up and provide them with capital gains. Essentially all popular accounts take it for granted that the crash of 1929 was the result of a stock market bubble. So too do Keynesian (and post-Keynesian) economists, who believe that financial markets are inherently unmoored from the fundamentals and are inevitably at the mercy of “irrational exuberance.” Experimental evidence suggests that even when trading is clearly grounded in fundamentals, adjustment is never instantaneous and bubbles are possible during the process.

The Preliminary Specification assumes that producers' property, plant and equipment accounts, as they stand today, will need to be exhausted in the next 30 months. Producer firms need to cease using investor capital to subsidize consumers' capital costs. All industry value and cash resources are held in producers' property, plant and equipment accounts. They’ve literally “put the cash in the ground.” This reflects the cumulative subsidies producers have forced investors to subsidize consumers by. If industry were to recognize those costs based on our Preliminary Specifications decentralized production models price maker strategy they would resume normal healthy operations without the need for outside capital. Key to this strategy and the realization of this value is the implementation of our price maker strategy. This would enable oil & natural gas prices to capture all exploration and production costs in a timely and accurate manner. This would ensure profitable operations. And therefore the industry could compete on the North American capital markets. Oil & gas is a capital intensive industry, so it is reasonable to assume that consumer costs will be predominantly capital in nature. This hasn’t been the case for four decades. Please review the Preamble to the Preliminary Specification for more information on our decentralized production model's price maker strategy.

Everyone intuitively understands that if each producer scaled back their production by 5% their revenues would triple. Oil & gas are commodities that reflect economic characteristics of price makers, not price takers as assumed today. With an elasticity of supply / demand characteristics severely affected by the incremental barrel. The issue is producer organizations built today were developed during resource scarcity. When resources are scarce, full production is assumed at all times. Therefore, using the high-throughput production model to offset high costs of an operation, especially overhead, would be a logical organizational approach. In the shale age, however, the market consistently experiences that incremental barrel, which leads to commodity price collapse. Therefore, an organizational methodology is needed to organize North American producers. One in which only profitable production is produced everywhere and always. And profitable from the point of view of all exploration and production costs being recognized on a timely and accurate basis. Turning over the capital trapped in property, plant and equipment so that capital resources, or cash, are not sitting idle waiting for decades to be returned and redeployed. In addition, investors are asked to fund basic operations. Investors are unwilling to invest their money and watch it sit in property, plant and equipment for ten to twenty five years. This is when other industries turn capital over in six months. Oil & gas producers are not competing for capital, only consuming it as evidenced by their claims of “building balance sheets” and “putting cash in the ground.”

People, Ideas & Objects are turning the entire industry's focus to where its value can best be increased. Profitable energy independence in North America. The producer's value proposition to the oil & gas consumer is quantified in the area of 10 to 25 thousand man hours of mechanical leverage. This is for each barrel of oil equivalent. The greatest contribution to society of any industry. One that civilization loses without. This needs to be the heightened focus and drive of producer firms. This is where their value is realized and the outsized role they play in the critical nature of providing abundant and affordable oil & gas products to the most powerful economy man’s ever known.

Who Are We Building Systems For?

We now apply and extend Professor Jurgen Habermas’ 1960s theory of different knowledge interests from his book The Theory of Communicative Action. We delve into the difficult question regarding what we need the Preliminary Specification for. Are we developing systems that manage oil & gas producer commercial operations? Yes we are, but that does not address the societal and individual needs of these systems. If we continue to look at just producers' needs, we leave many needs unaddressed. Society and individuals are critical elements of a profitable oil & gas industry. For example society benefits by having producers and the service industries efficiently interact, develop profitable operations, pay royalties and taxes. Individuals create innovative solutions to producers' demands for their services. Profits from primary industries such as oil & gas are necessary to ensure prosperity throughout the secondary and tertiary industries that exclusively support North American producers. Trickle-down economics is valid in its application. This has not occurred in oil & gas and now there are significant issues ahead and large consequences as a result of the past management of the industry. Today no one in oil & gas would question the need for real profitability in North America, everywhere and always.

Organizations, individuals and society benefit from an increased and expanded division of labor and specialization. As defined by Professor Anthony Giddens' The Constitution of Society and Professor Wanda Orlikowski's structuration model. In today’s globalized, high technology workplace an expanded division of labor and specialization can be more efficiently created through permanent industry-wide software development capability. People, Ideas & Objects describes this in its Preliminary Specification. When we consider the oil & gas industry's economic output, increasing it requires increased levels of specialization and division of labor. Responsibility for increasing output does not fall on society, individuals or organizations in isolation but on all three. Therefore it is reasonable to state that what we need is the Preliminary Specification to address societies, individuals and organizations' needs. I do not foresee further development of the division of labor or specialization within the oil & gas industry without systems development involvement. In a somewhat deliberate manner where all groups are represented such as People, Ideas & Objects Preliminary Specification.

The Flow of Funds

As well as their part-time work with People, Ideas & Objects our user community relies on this as one of two sources of funding. I now seek to clarify how our revenue model provides funds flow within these associated communities. To start we need to clearly identify the two different groups that are supported by People, Ideas & Objects revenues and who is not. These groups include (1) People, Ideas & Objects, (2) our user community members. Service providers are a separate and distinct group of independent businesses funded by producers. These funds replace their current accounting and administrative resources. They will deliver People, Ideas & Objects software with process management services directly to producers. Therefore, our user community members will receive another revenue stream since they are the service provider's principal owner and operator. The size of the service provider's revenue stream would be consistent with what is incurred today in the oil & gas industry for accounting and administration. The need for financial support for these communities is as follows.

Funds will then be distributed from People, Ideas & Objects to our user groups for their participation in our software development. Our user community members are independent business people. They define and design the systems needed by the oil & gas industry based on the Preliminary Specification vision. This is a revenue-generating activity for their organizations. It is in this way that People, Ideas & Objects acquires Intellectual Property rights to our user community members' contributions. Please see our User Community Vision for further information.

People, Ideas & Objects Capitalization

Another element of our Revenue Model is the means by which People, Ideas & Objects are capitalized. Traditionally software developers are stand-alone organizations with their own banking, regulatory and venture capital influences. People, Ideas & Objects takes a project management perspective in providing this software solution to the marketplace. Our capital structure differences are significant, with our Revenue Model being a critical element in defining and supporting these differences. Other key deliverables of this organizational structure are People, Ideas & Objects earnings, Intellectual Property royalties and Flexible Profitable Production Rights.

Our ability to maintain our focus on our user community's needs. I believe the situation in oil & gas today is the most significant issue in its history. The monetary value of our solution to the oil & gas industry is substantial. On the other hand the oil & gas industry, from an ERP perspective, is very small and raises a number of difficulties in terms of realizing any value from our efforts. Our budget is immaterial to the value created when producers implement the Preliminary Specification. Far more money is lost each month due to oil & gas overproduction and oversupply.

Our application scope and scale are very large. We need to eliminate and deal with any constraints that would otherwise occur with a compromised capital structure of People, Ideas & Objects. Therefore People, Ideas & Objects is funded by its Revenue Model and focused on its users, making it more of a project management venture. To be clear the scope and scale of People, Ideas & Objects is well beyond what venture capital groups would fund. Complicating our capital structure only complicates and compromises our software and services deliverability. To suggest that People, Ideas & Objects can be structured without investment capital might be naive for me to consider. However I do know that it would be naive to suggest that the systems as described in the Preliminary Specification could be built with the traditional influences of a capital structure. It would be contrary to the best interests of breaking from the existing failed industry culture. Theoretically our investment capital demands may require us to compromise with producers on a few key issues. To then suggest that we were focused on quality and achieved that through our user community would be a farce. Therefore, with that in mind and to ensure that the Preliminary Specification captures the full scope and scale of the technical and geographical concerns of the profitable North American oil & gas industry we can ensure that our user community basis for our software development remains our priority.

We must break from the dysfunctional culture of the current industry's administration. We will only recreate the same failed state if we need to compromise on their failing methods in order to receive our funding next month. Another issue with our funding is that we are subject to producer firms' whims. When push comes to shove, market dynamics may have changed as they did in 2022 with higher commodity prices. It would then be a good time to cancel this project by cutting its funding. Please note that 2022 may be the producers' 6th good year out of 36! Only when they have some “skin in the game” will they remain committed to the manner that will make this project successful and carry it to completion. Expecting producers to directly, or indirectly through our Profitable Production Rights, pay for large development costs. And it is to ensure that they face the difficulties and accountability necessary to firstly admit they've failed and secondly be committed to one solution.

We have discussed the risks of becoming “blind sleepwalking agents of whomever feeds us.” It's an issue of concern when discussing systems development. People, Ideas & Objects Revenue Model shows these risks are real and require an entirely different approach to funding our software development. It serves no one's interests, People, Ideas & Objects, our user community, service providers, producers or the service industry to proceed without dealing with this issue. It is advisable to identify these conflicts and compromise situations now, while the influences are manageable. Financial participation is how our communities are supported and can avoid becoming “blind sleepwalking agents of whoever feeds us.” People, Ideas & Objects are user focused developments. Software development projects can prioritize many choices. Users are one, technical efficiency is another and there are many other possibilities. To support the oil & gas industries' profitability needs everywhere and always. It is critical to focus on a producer's competitive advantages, their land & asset base, and their earth science & engineering capabilities. Users need to have the software tools, capabilities and means of production (the financial resources to build these products and services) under their control. If funding were to be cut or suspended mid-way through this project only the producer's officers and directors would win. There would never, or could ever, be a resurrection of the project or anything similar for the foreseeable future. Producer officers and directors need to be removed from the future success or failure of this development. Cutting their control of this project's funding is only the first step.

Change-Based Software Development Capability

People, Ideas & Objects focus on our user community. They are one of our three competitive advantages. They are our customers. Providing them with the software development capabilities they need to support oil & gas business opportunities and issues in the 21st century. This is not a static instance. As the oil & gas business changes, the software derived from the Preliminary Specification will accommodate those changes. This will be done through the establishment of our permanent software development capability and our user community. We therefore provide change-based software development capability for the North American oil & gas industry. We are not introducing “new” technology for technology's sake. Technology will have a substantial impact on our revenue model. However it is the oil & gas business, and the changes in that business that drive our user community and People, Ideas & Objects.

Traditional ERP vendors in the oil & gas marketspace "sold" a solution to oil & gas producers and supported that application through an annual service contract. Our competitors sell a product that does not keep up with changes in the business environment. Contrast that to the People, Ideas & Objects Revenue Model that is dynamic in that we focus on business environment changes. Preparing Cloud Administration & Accounting for Oil & Gas software and services. These changes generate our revenue stream. Without changes to the software, there would be no developments and no fees assessed in that year by People, Ideas & Objects. These fees are the annual fees incurred by producers once the Preliminary Specification is released.

It is a fundamentally different point of view. Traditional ERP vendors are constrained by their code and their customers. Any changes to the code need to be populated for the variety of customers who use their software. As a result, the vendor is resistant to change. The more code the software vendor generates the more complex the changes will be. And the more customers vendors have, the more costs and conflicts arise. Innovations and enhanced features are not covered by the software vendor's service contract. People, Ideas & Objects will use Oracle's Cloud ERP where changes will be populated for our user base on the same quarterly basis as Oracle’s product. We are oriented to the changes in the oil & gas producers business environment through the demands of our user community. These changes drive our revenue. The contrast between the traditional ERP vendor and our change-based software development capability could not be greater.

Our applications provide software development capability for the oil & gas industry, service providers and service industries. It allows the industry to adapt when opportunities and issues arise. We believe that proceeding through the 21st century without a team of committed and capable ERP software developers will unnecessarily constrain the oil & gas industry within the Preliminary Specifications definition. Evolution of that model is necessary to eliminate systemic and chronic issues. As an example, the current problem of overproduction and oversupply has been around since the mid-1970s.

OCI User Community & Service Provider Competitive Advantages

 The following is a brief summary and description of the distinct competitive advantages shared between our user community and their service provider organizations. These are the accounting and administrative resources that will be redeployed from the producer firms to be headed up by our user community members in their service provider organizations. These resources will be used to manage oil & gas and associated industries processes. Each advantage shows the unique nature of the competitive environment we seek to build. This is to ensure that North American oil & gas producers are provided with the most profitable means of oil & gas operations, everywhere and always. 

Overall the reallocation of producers' administration and accounting resources in this manner provides several advantages. First it enables People, Ideas & Objects decentralized production models price maker strategy. Establishes a sub industry between producers and the Information Technology community. Employ Professor Paul Romers' non-rival New Growth Theory by sharing administrative and accounting resources industry-wide. Producers will no longer need to build and maintain redundant and costly infrastructure for accounting and administration. Producers will share industry-wide capacity and capability. These competitive advantages eliminate ERP constraints that cement organizations into unchangeable structures. Enabling specialization and division of labor, spontaneity, serendipity and creative destruction to return as powerful tools for competition.

We purposely create these distinct competitive advantages in administration and accounting. Delivered to the industry by our user community members and their service provider organizations. It is this unique configuration that enables these major economic forces to be applied and iterated upon. This creates substantial value and is responsible for the majority of our identifiable, tangible value proposition. When producers are prosperous, all those associated with the industry will realize that prosperity. The proof of that statement is in today's chronic downturn.

Accounting & Administration Expertise

Having acquired extensive experience and training in their fields, our user community members will provide administrative and accounting expertise. This applies to their service providers as well. We offer Cloud Administration & Accounting for Oil & Gas as a sub-industry between technology and oil & gas. Filling a gap between the two as we feel they’re not communicating effectively. 

Analysis of Conflict & Contradictions as Analytic Tools

Conflict and contradiction indicate where the issue's source is. Analysis of these two factors will reveal alternative solutions. When we apply these to the business environment, behaviors, communication methods and other factors, they can provide insight and understanding into issues and their resolution. These are some of the more advanced tools that will be needed to handle the incredibly large volume of issues the industry and our users will have to resolve in the future. 

Application of AI & ML

Artificial Intelligence is overrated in the marketplace at this time. AI is a module in the Preliminary Specification where we can establish effective and efficient algorithms from our user community. These algorithms can be shared across the industry. Offsetting the inordinate cost of each producer involved in the difficult business process of developing, testing and proving AI algorithms. And draining the market of valuable resources to be used elsewhere. Machine learning is a far more effective tool that will be valuable to our user community due to the distinct perspectives they'll have on industry data. They’ll have data sets of the individual processes they manage. That processes data for the entire industry. This data set would be interesting to analyze from the point of view of its unknown unknowns. 

Automation

Automation will be implemented to ensure that the most effective and efficient operations are provided to producers participating in these developments. Relieving administrative and accounting resources to pursue higher level, value added opportunities. Reduction of costs in this sense is worthwhile as it implies high automation levels. Automation doesn’t just reduce costs directly it does so indirectly through error reduction. Error reduction reduces time. What admittedly is becoming a critical resource as we proceed through the 21st century economy. 

Accounting data sets for producers are inadequate for automation purposes. As well as for general financial reporting purposes. The need to organize and manage the firm's data in appropriate formats is a necessary first step before automation or Artificial Intelligence can be applied.

What information consumes is obvious. It consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.

- Nobel Laureate and Professor Herbert Simon.

Collaboration

A collaborative, collegial environment would be the basis of a competitive environment between our user community and service provider organizations. The basis of collaboration and cooperation is the importance of the work they're undertaking and their critical role in rebuilding the oil & gas industry on performance and profitability criteria. 

Licensing of our user community and their service provider organizations provides the exclusive right to manage an individual process. This is on behalf of the entire North American oil & gas industry. The potential tangible and intangible benefits from service providers will be substantial. To compete on price circumvents the long term value generated from pursuing specialization & division of labor, sharing more broadly and other methods that take time and investment to materialize. Value that is realized by all producers.

Compromising

Finding solutions in a world of difficult and complex issues requires creative solutions that meet the needs of those parties. Although we are rebuilding brick by brick and stick by stick there are established industry methods, regulations and processes that need to be adopted. We need to create effective ways of implementing and organizing them. This demands that our user community members offer industry solutions that work for all concerned. 

Creativity & Design

Some may struggle to imagine creativity in administration and accounting. However there is nothing that will be more critical in the discovery, testing and implementation of effective and innovative procedures that provide value to the oil & gas industry. We published the Preliminary Specification in August 2012 and soon after, in March 2014 began the development of our user community. As a result people within the larger oil & gas industry have had the model in the form of the Preliminary Specification and our user community vision in their minds for the better part of a decade. Understanding what their involvement could be, should they decide to join our user community based on the principles set out in these documents. Enabling them to prepare themselves, both directly and indirectly for our development and implementation to begin. 

Creative Destruction, Spontaneity & Serendipity

Each of these is an established economic principle that has been eliminated from the 21st century business landscape through ERP software. The unchanging methods and procedures that software defines in organizations, and particularly ERP systems, lock organizations into rigid and unchangeable situations that only serve the status quo. People, Ideas & Objects have established through our user community and service providers that they can make the effective changes necessary to ERP systems. These changes will be derivative of the Preliminary Specification. Establishing a permanent user community and software development capability is necessary for businesses to evolve throughout the 21st century. 

Explicit and Tacit Knowledge

Providing software in the marketplace is a small part of the solution today. Software captures explicit knowledge and codifies it within process management. It is the service provided with that software that provides value. Tacit knowledge must be included in the service package. Where producers' accounting and administration are managed, such as our Cloud Administration & Accounting for Oil & Gas. Software and services must be able to make the changes necessary to proactively accommodate the accelerated pace of change of today’s market, and what we can only assume will be the case tomorrow. 

Ideas

The uniquely human element that will be in demand. An idea that generates a dollar today will produce a nickel tomorrow. The need to have exponential volumes of ideas will be a demand of the future in everything we do. How these are captured and implemented in our Cloud Administration & Accounting for Oil & Gas software and services will be a necessary part of our user community. And with the shared and shareable model these ideas, once proven, tested and appropriately implemented will be leveraged throughout the industry. Building value for everyone. We believe oil & gas needs to be efficient in process management. The accounting and administration of a producer firm are not distinct competitive advantages.

Innovation

The Preliminary Specification and supporting services are based on innovation. Innovation is a defined and replicable organizational process, according to our research. These have been incorporated throughout the sub-industry we're building. Importantly our user community and their service providers can affect the changes needed to facilitate innovation in efficient and effective ways through the design of their organization.  

Integration

Integration or implementation falls under the responsibility of our user community and service providers. These are the critical components and the final steps in ensuring the quality of software and services we’ll provide. Integration begins on day one of development in terms of planning and preparation. Our user community members will ensure that their service providers are appropriately implementing process management. As the principal owner of the service providers they’ll be duly authorized and responsible.

Issue Identification & Resolution

“Muddling through” is over. There will be no more ignoring oil & gas issues. People, Ideas & Objects provide the tools, methods and Organizational Constructs to address and resolve issues. We see that software is the issue in that it seals organizations in concrete. Which is commendable from a governance perspective, however it must be innovative and capable of change to achieve the high level performance trajectory of a dynamic, innovative, accountable and profitable organization in the 21 century. This will be an order of magnitude more difficult than what the oil & gas culture knows. As difficult as the industry situation appears today. Consider how much simpler it was only a decade or two ago. What will it be a decade from now in terms of the issues and opportunities these firms face? To be unprepared as we are today is dangerous and reckless. 

Judgment

Not a distinct competitive advantage of computers. A uniquely human characteristic that will be the basis of understanding for the remainder of this century and as long as we choose. Oil & gas is valued in the consumer marketplace. The threat of shortages and their impact on civilization is unfortunate. Setting the proper landscape for a more dedicated environment in which oil & gas can prosper and conduct its business operations. What is our judgment regarding the capability and capacity of current producer organizations to realize these opportunities? When each barrel of oil equivalent provides 10 to 25 thousand man hours of equivalent labor it is the consumer who benefits. This is the producer's value proposition, our focus and drive. Why would oil & gas ever be produced unprofitably when it is irreplaceable and limited?

Leadership 

I expect that our user community will provide leadership in the administration and accounting of North American oil & gas producers. Expectations that include the development and evolution of business models and "what, how, and why" profitability is earned. It will provide the industry with the tools to evolve at the speed and capacity required to meet future needs. 

Negotiating

Negotiations and compromise on the basis of interactions between producers and our user community will be frequent. Compromises and negotiations on the Preliminary Specification however cannot and will not occur. The business model is integrated and dependent on that model functioning together. Changes at the Preliminary Specification level may have implications unknown in other areas of the system. If these changes are necessary, they can be analyzed and corrected based on the most comprehensive understanding, once developed. While we haven't fully comprehended all its implications, we should be cautious before disrupting it. 

We are instituting a cultural shift in industry management. Moving away from “muddle through” to a culture of performance and profitability. There will be attempts to resurrect “muddle through” in its many forms by the status quo. We need to be wise to these and ensure that they are excluded from the Preliminary Specification. 

Planning

Planning in a dynamic environment is futile. It however communicates to participants the information necessary to begin the process. It is the first step. 

Quality

Define it, clarify it, communicate it and ensure its implementation. It used to be when you drove downtown to work in the morning, and returned at night. You would see 2 - 3 cars broken down on a 15 mile trip. Japan exploited this opportunity to enter the North American auto market. They introduced reliability. There has been a shift in software reliability in recent years primarily because of the cloud computing era that secured the environment of software and services. Phones are far more sophisticated than people realize since Steve Jobs started in the 1980s after being fired from Apple. And Sun Microsystems with Java’s commercial release in 1994. Cloud Administration & Accounting for Oil & Gas, standardization, objective accounting and other methods will provide higher reliability on top of these technologies. A duly authorized, responsible, and capable user community can do so much more. 

Research

Primary research is abundant in the 21st century. We can choose to stand on the shoulders of giants, or recreate it again if we like. The amount of primary research unused at this point is probably larger than what has been implemented. There is rich ground here for value generation for those that can turn these ideas into reality in oil & gas. In light of all the competitive advantages listed under our user community, putting research under their domain is a natural fit. We see this as highly complementary to the research People, Ideas & Objects will conduct. 

Specialization & the Division of Labor

It has been the source and generation of all economic value realized since 1776. However, software disables its natural development process of “gap-filling” when it has no capacity or capability to change, and the organization has a vested interest in the status quo. Producers have relied on “cost cutting” to generate value for decades and have nothing to show for it but a fundamentally destroyed service industry. Specialization & the division of labor in terms of the development of our user community and their service providers will continue to be a priority. They will introduce the same to the entire oil & gas industry.

Thinking

The contrast between “doing” and “thinking” may grow more significant as we proceed through the 21st century. Writing is thinking. It is becoming increasingly difficult to provide basic services, such as oil & gas, in a timely manner. More may not resolve the issue. Getting ahead of the game may be a thing of the past and a luxury we can tell our grandchildren about. We live in an environment that will require testing hypotheses of various scenarios and assessing the results. Determine what is right based on what generates value for the firm. An environment where what an individual gets out of it is based on their value that they generate.

OCI Leakage vs. the Right Information, Pooling and Operational Control

 Leakage vs. the Right Information

People, Ideas & Objects establish the means for producers to build value from their competitive advantages of their land & asset base, and earth science & engineering capabilities. To be achieved through profitable reserve expansion, production increases or cost reductions. With the Preliminary Specification a second revenue stream is firmly established from the deployment of their science and engineering capabilities to the various Joint Operating Committees they have an interest in. This revenue stream is designed, at a minimum, to offset the full cost of building and maintaining the competitive advantage the producer has in terms of their earth science & engineering capacities and capabilities.

Providing people with the appropriate knowledge and information to act in a fast-changing environment is difficult. Speed will be a critical component of producers' capabilities, deployment and competitive advantage. Currently, some of the difficulty in getting knowledge and information to the right people is a result of ensuring the integrity of the information will not be breached by those not part of the organization, or not the information authorized by the organization. The Security & Access Control module of the Preliminary Specification imposes high levels of integrity on all communications and storage of data and information. Inheriting much of these capabilities from Oracle Cloud Infrastructure. However with high levels of collaboration throughout People, Ideas & Objects Preliminary Specification there may be the expectation that these collaborations between firms in the Joint Operating Committee may lead to some perceived leakage of proprietary knowledge losses. People, Ideas & Objects ask if information losses impose any risk to innovative oil & gas producers' competitive advantages of their land & asset base, or earth science & engineering capabilities?

No they do not. In fact, collaborations enhance the firm's innovativeness and capabilities. In a fast moving, innovative industry the last thing a producer needs to be constrained by is a method of operation where they own specific Intellectual Property, and as a result it is the only method of operation the firm pursues. Are the producers and Joint Operating Committees capabilities a fixed point of science or an ability to apply innovations and scientific developments? Do medical Doctors own the Intellectual Property they treat their patients with or use the most advanced treatments available?

The question therefore becomes how is appropriate information and capability deployed as needed? Professor Giovanni Dosi notes that although the free movement of information has occurred in industries for many years, it has never been easily transferable to other companies within those industries. Replicating a competitive advantage from one company to another is not as easy, or even worthwhile. Dosi (1988) goes one step further and states, “even with technology license agreements, they do not stand as an all or nothing substitute for in-house search.” A firm needs to develop “substantial in-house capacity in order to recognize, evaluate, negotiate and finally adapt the technology potentially available from others.” Therefore why not focus on the need to increase the company's own unique and specific competitive advantages based on advanced specializations and divisions of labor in these sciences?

We’ve discussed the firm's operational governance and the Joint Operating Committee. A significant element of this discussion is the capabilities these organizations have access to. Capabilities are documented in the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification. These are the documentation of the explicit knowledge that the producers capabilities are able to conduct. And to state this more clearly, these are attained through coordination of the market's earth science & engineering capabilities. Therefore, from a governance perspective, these capabilities should be protected and kept for the firm's use only? Nothing could be further from the truth. Usage of these capabilities will leak to outside firms. As part of their capabilities, the firm must prioritize having the right information deployed by the right people at the right time and in the right location. Governance therefore should be more concerned with the appropriate and timely use of these capabilities in terms of generating value, rather than the hoarding and protection of information that will be released in some form nonetheless, may be generally understood throughout the industry and will be the basis of further market innovations and developments in the near future. From Professor Richard Langlois' “Modularity in Technology, Organization, and Society."

This is the basic modularization of the market economy. It accords well with the modularization G. B. Richardson (1972) suggested in offering the concept of economic capabilities. By capabilities Richardson means "knowledge, experience, and skills" (1972, p. 888), a notion related to what Jensen and Meckling (1992) call "specific knowledge" and to what Hayek (1945) called "knowledge of the particular circumstances of time and place." p. 27.

If the Joint Operating Committee coordinates these capabilities in the appropriate way, externalities will flow to the producers represented there. That is what operation governance is most concerned about. That there’s leakage of some explicit knowledge of these capabilities during operation is immaterial to the firm's externalities and competitive position. We discussed this during our review of Professor Giovanni Dosi for the Preliminary Specification. His research showed that it took equal and sometimes more effort to copy another firm's capabilities than to generate them. It is therefore more effective for a firm to focus on their key competitive advantages, their land & asset base, and their specialized earth science & engineering capabilities. In a dynamic, innovative and rapidly changing environment a producer firm wants its key competitive advantage to be state of the art and on the cutting edge at all times. Using market offerings to encourage and reward Intellectual Property developers to fully develop their products and services. To do so without fear of the producer community disregarding their property. This will make the service industry and other vendors able to support oil & gas producers and their efforts to generate value. Intellectual Property is not the domain of oil & gas producers in any way. Their value development is a result of the deployment of their tacit knowledge and coordination of the marketplaces resources. And what producers capabilities can do with that knowledge to build value from their oil & gas assets.

Pooling

People, Ideas & Objects use specialization and division of labor to increase industry performance and productivity. These are joined with six other Organizational Constructs to form a culture of preservation, performance and profitability for North American oil & gas producers. We have applied this solution to the earth science & engineering disciplines to deal with the anticipated difficulties in accessing adequate numbers of these resources in the mid to long term. When using the Joint Operating Committee as the key Organizational Construct of the dynamic, innovative, accountable and profitable oil & gas producer. We are moving this earth science & engineering knowledge to where operational decision rights reside to increase accountability for decisions made. Therefore we have eliminated the “operator” designation to introduce our pooling concept.

The capabilities to house “state of the art,” “just in time” earth science & engineering resources necessary to operate each property within one oil & gas firm are believed to be beyond what will be commercially viable in the very near future. This is a result of the further specialization of earth science & engineering skills needed by each individual and each producer firm within the industry. With the current market situation, due to retirements and the inadequate number of people entering the professions, producers' resource costs are expected to increase. Additionally an anticipated increase in throughput is necessary to meet energy independence demands. The known fact is that each barrel of oil or gas demands more earth science & engineering effort as we consume the “easy” reserves first. When specialization is required, if each producer firm maintained the full scope of their capabilities necessary to achieve “operator” status, they would no longer be commercially viable businesses due to this increased demand from specialization and their limited supply.

Specialization and the division of labor is the only proven solution to increase performance and productivity. Introducing multiples of what is currently available. Another Organizational Construct of the Preliminary Specification is Professor Paul Romer's concept of non-rival costs, or sharing, as a further enhancement to specialization and the division of labor. With the Preliminary Specifications pooling concept, each producer on the Joint Operating Committee should be able to contribute their advanced hyper-specialized capabilities to the Joint Operating Committee. The objective being to enable the Joint Operating Committee to draw from the much larger pool of Joint Operating Committee producers' capacities of engineers and earth scientists. Also, it is meant to draw from market offerings to obtain the necessary "operator" capabilities. Additionally, there is the need for the removal and offloading to the marketplace of the lower level technical work and its payroll burden from the producer firms. This is done by service providers that specialize and divide labor based on geology and engineering skills. Enabling producers to specialize in those highly specific areas of competitive advantage that provide real tangible value creation.

To increase their competitive advantage and earn a return on their investment, the producer firm invests in developing their capabilities. Under the pooling concept this implies market coordination by using the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification. They are the critical competitive differentiator in the industry under the Preliminary Specification. They are also how within People, Ideas & Objects ERP software the producer earns a return on their investment in their capabilities. Through expansion of their petroleum reserves, production deliverability or reducing their overall costs on a barrel of oil equivalent basis. This is done in a highly competitive, dynamic and innovative environment. The answer in the short term is to ensure that these critical resource costs are recovered from oil & gas exploration and production on a day-to-day basis. Time and direct charges are recovered from the joint accounts for all of their time and expenses. That is to say that the people (representing the producers capabilities) who are pooled into a Joint Operating Committee, have been assigned a role within the Industrial Command & Control, Job Order and Work Order systems of People, Ideas & Objects et al Preliminary Specification. Whose costs are captured in the Partnership Accounting module. Consequently, the deployment of the producer's capabilities will result in a second revenue stream. That offsets the cost of building and maintaining these earth science and engineering capabilities.

This pooling concept is the solution People, Ideas & Objects have developed to replace the current "Operator" designation. Producers' ability to have just-in-time capabilities for all properties requires an industry-wide surplus of unused and unusable earth science & engineering capabilities to fulfill this just-in-time requirement. This has led to individual producers hoarding these resources to meet their just-in-time needs, causing low utilization rates industry-wide. The ability to pool producers' highly specialized resources into the Joint Operating Committee releases these otherwise unused and unusable capabilities. Facilitating an increased level of specialization for producers. An innovative oil and gas industry requires specialized knowledge, skills, experience, and ideas from all producers. Therefore each of these producers must be able to charge and recover their costs for these resources through a joint account as necessary. A charge made to a company's operations or capital expenditures to earn a return on the specialized capabilities it has built.

A note here to say that this falls under the domain of an ERP (Enterprise Resource Planning) solution for the following reasons. People, Ideas & Objects highlighted Professors Anthony Giddens and Wanda Orlikowski's Structuration Theory and Model of Structuration. In summary these suggest that software defines and supports organizations and therefore constrains them. Without software to define what an organization is and what it does, it would not exist commercially in the North American oil & gas marketplace. Sealing the producer firm in the long term definition of the Preliminary Specification would be as inappropriate as today’s business issues arising from the unchanging ERP software environment that exists. Therefore, People, Ideas & Objects, our user community, and their service providers will develop a permanent software development capability. This is based on the needs of the dynamic, innovative, accountable and profitable oil & gas marketplace. Ensuring the Preliminary Specification and the services associated with it are kept up to date and serving the greater oil & gas economy.

Operational Control

Operational control and innovation are at opposite ends of the spectrum. That however does not mean they cannot be accomplished by the same organization. The innovative oil & gas producer must have both. One without the other is not worth pursuing. Conflict and contradiction will show up in the organization at some point and the need to deal with it becomes a governance issue. Producers using the Preliminary Specification will have the tools necessary to ensure that the Joint Operating Committee can discern the difference between innovative markets and tight operational control.

When the Joint Operating Committee conducts field operations, it establishes a temporary organization representing individuals from a variety of different sources. Other producers who are partners in the Joint Operating Committee, vendors, suppliers and service providers are some of the sources that make up these temporary organizations. Innovative oil & gas producers need operational control over these resources. In the Preliminary Specification we provide a number of tools to enable the Joint Operating Committee to maintain high levels of operational control over these temporary organizations. Please see the Operations Management module.

The first of these tools is Industrial Command & Control. An ability to impose a chain of command over these resources that span the producers, suppliers, vendors and service providers that are working in the temporary organization that’s been established. Next there is the Job Order which is a means to execute the plans and operations of this temporary organization during its operation. Nothing should be done without the appropriate Job Order issued by the recognized and designated authority listed in the Industrial Command & Control chain of command. There is the AFE in which the budget is established and maintained, as well as the lease. And the Work Order that enables producers' resources to be charged to the Joint Operating Committee. This ensures producers recover the costs of building and maintaining their distinct capabilities.

These are the tools at the disposal of the people responsible for the Joint Operating Committee's operation. They are designed to provide a sharp contrast to the freewheeling and innovative ways of the market. Both of these, innovative markets and tight operational control, are healthy for the innovative oil & gas industry. Provide the operational control required for a dynamic, innovative, accountable, and profitable oil & gas producer.

OCI Compliance & Governance, Part V

 Governance Over Operational Control

Within the Preliminary Specification there is a conflict or contradiction that needs to be managed through the Compliance & Governance module. That is the posture that needs to be adopted by the Joint Operating Committee members towards the service industry representatives. At two different times and two different places during the ongoing operation of the properties the approach towards the service industry may be fundamentally different. At one time the approach will be to have the service industry operate as a free-wheeling marketplace where innovation and ideas flow. And then there will be times when operations are conducted and military precision is expected and required to ensure operations are completed successfully. This Dr. Jekyll and Mr. Hyde routine would give most people, in both the Joint Operating Committee and the service industry, a second look. 

On the one hand we have a marketplace and on the other we have operational control. And for many reasons the two may be the same people interacting in different capacities and at different times. The governance issue is; how do we ensure that the operating mode, marketplace or operational control, is the appropriate mode for everyone? This is of particular concern to service industry representatives, as so much of the operational control and success of the operation depends on their full attention. 

The answer to this question comes from the “Operational Review & Governance Interface.” If there is an operation currently being conducted by the Joint Operating Committee. And there have been no corners cut or shortcuts taken. Instead, there will be the explicit knowledge contained in the “Dynamic Capabilities Interface,” the “Planning & Deployment Interface,” assignments under the Industrial Command & Control which will include representatives of the service industry, the AFE, and Job Order. While none of these are required in the marketplace. Therefore the onus is on the Joint Operating Committee to ensure that these tools are used to contrast it with a freewheeling marketplace. And it will be at the “Operational Review & Governance Interface'' that governance over the members of the Joint Operating Committee is imposed to ensure they are using these tools appropriately during their operations. 

Operational control and innovation are at opposite ends of the spectrum. That however does not mean they cannot be accomplished by the same organization. The innovative and profitable oil & gas producer must have both. One without the other is not worth pursuing. Conflict and contradiction will show up in the organization at some point and the need to deal with it becomes a governance issue. The user of the “Operational Review & Governance Interface” will have the tools necessary to ensure that the Joint Operating Committee can discern the difference between innovative markets and tight operational control. 

Governance Over the Second Innovation Process

We have been concerned with governance over operations, and now we want to look into governance over the two major innovation processes in the Preliminary Specification. The first process of innovation is the development of innovation within the producer firm. This is a result of earth science & engineering capabilities being developed. The second process is as a result of field level innovations developed by the service industry. These innovations are either product or service related in terms of their offering to the producer or Joint Operating Committee during some operation. Either way it is critical that the producer firm has a measure of governance over innovation developments for a variety of reasons. These governance elements will again be captured in the “Operational Review & Governance Interface” of the Compliance & Governance module. Quotes are from Professor Richard Langlois' paper “Innovation Process and Industrial Districts.” 

What will the innovative oil & gas producer and Joint Operating Committee do when they innovate? That seems to be a fairly reasonable question and one that would be the founding principle in which governance over the innovation processes should be based upon. It's here that Professor Langlois provides us with a very concise summary for our purposes. 

In this survey, we examine the operations of innovation within industrial districts by exploring ways in which differentiation, specialization and integration affect the generation, diffusion, and use of new knowledge in such districts. p. 1.

The source, deployment and use of this knowledge is the “Dynamic Capabilities Interface” in the Research & Capabilities and Knowledge & Learning modules. Recall that “knowledge begets capabilities, and capabilities beget action.” The capabilities contained within the “Dynamic Capabilities Interface” are comprehensive and are designed to serve the needs of all of the people required for that particular operation.

While it is possible to conceive of a firm that is so hermetic in its use of knowledge that all stages of innovation, including the combination of old and new knowledge, rely exclusively on internal sources, in practice most innovations involving products or processes of even modest complexity entail combining knowledge that derives, directly or indirectly, from several sources. Knowledge generation, therefore, must be accompanied by effective mechanisms for knowledge diffusion and for "indigenizing" knowledge originally developed in other contexts and for other purposes so that it meets a new need. p. 1.

And

Relationships within industrial districts therefore lead to diffusion but also to the creation of new knowledge through shared preoccupations. Because many people or firms can work on a problem simultaneously, a number of different solutions may be found (Bellandi, 2003b). The result is a larger and stronger "gene pool" within the sector (Loasby, 1990, 117), with the further advantage that solutions that are originally regarded as competing may turn out to be complementary and well-suited to different niches within the district.  p. 7.

I could recite more of the elements of the Preliminary Specification as the reasons for the governance requirements in the “Operational Review & Governance Interface.” The point needs to be made is that the two major innovation processes need to be reviewed at a high level within the firm. There are many interactions between the firm and the Joint Operating Committee, and the larger service industry. This means that the possibility that all valuable knowledge is not codified is high. That is just one of the risks. Another is that the “Lessons Learned Interface” doesn’t capture failures accurately for further learning. These are necessary to be reviewed to ensure that knowledge, capabilities, and innovations are built upon for the future.

People, Ideas & Objects and Oracle Corporation

Where to begin? Let's start with a high level summary of the Oracle Governance, Risk & Compliance Management Suite of modules. There are three groups in which the modules are organized. These are Risk & Financial Governance, Performance & Financial Controls and Access & Segregation of Duties Controls. Within these three groups you will find the modules Oracle developed in Oracle Fusion Applications, Oracle Governance, Risk & Compliance Management Suite. We will discuss the Risk & Financial Governance module with Performance & Financial Controls and Access & Segregation next. Needless to say these modules have all been adopted within the Preliminary Specification. 

To the larger issue of compliance and governance and how a firm handles the growing demand for more regulation. Oracle and People, Ideas & Objects have similar ideas on how to keep ahead in this difficult area. Oracle asks the following.

No one expects this to be the end of ongoing industry and legislative requirements. Business executives continue to struggle with questions like: How can we stay on top of regulatory demands while controlling costs? Can we better manage risk to prevent business and compliance failures? How do we achieve better performance while ensuring accountability and integrity?

And it is through automation, Information Technologies and the use of specialization and the division of labor that the innovative oil & gas producer can achieve these objectives of getting ahead of regulations. As we have proposed in the Preliminary Specification, the producers that participate in our user community will have the opportunity to shape the software they will use. People, Ideas & Objects is user defined software based on the Joint Operating Committee. Giving the producer the ability to remake their organization into an innovative, profitable and performance-oriented oil & gas producer. 

In terms of Oracle’s Risk & Financial Governance module. Producers will be able to increase compliance efficiency, improve financial reporting reliability and anticipate and respond to risk. We discussed the element of risk in the Financial Marketplace module and the assessment of all investments based on their anticipated returns. Each of the potential investments have to be “risked” in order to bring the return on comparable terms that consider the risk. It is here that the two modules, Oracle Risk & Financial Governance and Financial Marketplace will crossover. It is also at this point that our two firms have similar attitudes, again, with respect to how the producer attains value. Oracle states.

KPMG's Assurance & Advisory Service Center understood early that value and risk go hand in hand and that performance and risk management should converge to create, enhance and protect stakeholder value. In May 2007, the Institute of Management Accounting further characterized Enterprise Risk Management as aligning strategy, processes, technology, and knowledge with the purpose of evaluating and managing the uncertainties the enterprise faces as it creates value. It considers ERM to be a truly holistic, integrated, forward-looking, and process oriented approach to managing all key business risks and opportunities—not just financial ones—with the intent of maximizing stakeholder value as a whole.  

This will be a key insight that our user community will be able to build off of the People, Ideas & Objects Financial Marketplace and Oracle’s Risk & Financial Governance modules.

Oracle Transaction Controls Governor is an application designed to continuously track key transactions. It also monitors data and application modifications. In terms of reviewing transactions, much of the application is programmable and can be set to look for certain criteria. This is done through an intuitive interface that controls and monitors all transactions for certain behavior. Oracle also provides a library of internal controls that can be deployed if the producer finds them useful. People, Ideas & Objects, working on behalf of our subscribing producers, will be able to provide a library of these internal controls specific to the innovative and profitable oil & gas producer. These controls output can then be directed to the appropriate individual within the firm to be dealt with. 

Oracle Configuration Controls Governor is an Oracle Fusion Application that provides Sarbanes Oxley compliance to the producer of IT infrastructure configuration changes. When there is a change to your IT environment, the who, what, where and when of the change is sent to the appropriate people within your organization. There they can review the changes to ensure that they were carried out in compliance with the company's policies. The Configuration Control Governor also allows establishing tolerances for fields. So if a user entered a number that exceeded the field's tolerance, the transaction would be rejected. 

During our discussion of the Compliance & Governance module we discussed the need for more internal controls. These transaction and configuration controls will provide appropriate governance for an element of the internal controls. That these are automated helps to provide a strong understanding of the appropriateness of the global transaction base the producer firm’s base their financial reports upon. However, they are not the whole picture of internal controls. And that is where Oracle Preventive Controls Governor comes into play. Using configurable workflows, Oracle Preventive Controls Governor enables the user to design and implement appropriate internal controls for their firm. This tool provides both contextual and intrinsic policy applications to business processes.

We look at Oracle Fusion Applications, Governance, Risk & Compliance Suite, Access Controls Governor module. This will be a key element of the Preliminary Specification as segregation of duties (SOD) is taking on heightened importance in the firm. The SOD offers many advantages to innovative oil & gas producers, regardless of whether it is a result of regulation or better governance. Having multiple people involved in the process from beginning to end ensures that no one individual can manipulate firm resources for their own benefit. 

Oracle notes the following is also part of the Access Control Governor module functionality.

Global regulations are driving organizations to improve the transparency and accountability of financial data, processes, and transactions. Controlling, tracking, and reporting on user activity within the application environment are critical components of compliance.

So apparently Big Brother needs to watch. And as good as your internal controls may be, there will always be ways to hack the system in ways unknown before. Thankfully Oracle’s Access Controls Governor module is automated and implements policies based on management's understanding. There is also a library of controls that can be implemented developed by Oracle in collaboration with leading audit and consulting firms. As with the libraries mentioned, People, Ideas & Objects will maintain a library of these policies for the innovative and profitable oil & gas producer. And the system is not just reporting violations, it is actively stopping and enforcing SOD when they occur based on those policies. And they can be dynamic and proactive in their enforcement, stating that no user can be involved in more than two steps of a five-step process, and disabling the user to sign on to another process at the time of assignment. 

When preparing policies for implementation the Oracle Access Controls Governor provides a tool for simulating the revised policies. Using the historical record of user access as the base of information it can run the revised policy against that data. This will enable it to determine what the outcome of that revised policy will be. Would there be any violations, false positives etc? Then they can tune the policy based on the feedback they receive from the tool. This will ensure that it is only targeting the desired situations. Saving costly resources in the future. 

From a People, Ideas & Objects perspective the Oracle “Governance” applications that we have discussed help to bring 21st Century internal controls to the Preliminary Specification. When we think of the manner in which the industry will operate, we will see large portions of the existing producers' overhead being provided by service providers. And those service providers access their work through the People, Ideas & Objects Preliminary Specification. It will be necessary to extend these internal controls to those individuals. The producer will need to know that these controls are effective in their firm, their Joint Operating Committees and the service providers they hire to maintain their firm.

Conclusion

Here we have the beginnings of compliance and governance for the innovative oil & gas producer and Joint Operating Committee. What we need to do is deal with the compliance of an innovative oil & gas producer with the tools of the 21st century. Those include automation, specialization and the division of labor. And in terms of governance, we can begin to provide the producer firms with the appropriate operational governance that is consistent with innovations demands.

OCI Compliance & Governance, Part IV

 Governance Over the Value Add

The level of innovation within the oil & gas producer will become more challenging as the earth sciences and engineering disciplines continue their steep trajectories. With high levels of activity in this area, and the implications being so broad and far reaching there will be areas where substantial value might be left uncultivated by the producer. These could be in the scientific or business areas and the question becomes who is responsible for capturing this value? This discussion will detail how the Compliance & Governance module of the Preliminary Specification deals with this situation. 

With our look at technological paradigms and the effect they have on scientific and innovative trajectories in oil & gas. When discussing these points about innovation, it is pertinent to remember that the sciences, the trajectories they are on, and the opportunities they generate for a producer, are accelerating and will continue to do so. With this in mind, we note that Professor Giovanni Dosi suggests two separate phenomena are observed:

First, new technological paradigms have continuously brought forward new opportunities for product development and productivity increases. 

Secondly “A rather uniform characteristic of the observed technological trajectories is their wide scope for mechanization, specialization and division of labor within and among plants and industries.” p. 1138.

Specifically, these new opportunities will be in the firm's business and technological areas. There will be opportunities that are within the scope of the oil & gas company's competitive advantage of its land & asset base, as well as its expertise in earth science & engineering. However, much of it will also be generated outside of its core area, in the service industry. This is through further automation, division of labor and specialization. It will also be generated in non-related business areas that are new and not well served by existing businesses. Most of this business value will be easily captured. That however does not necessarily mean it should be pursued. At these times, the governance model must ensure that the firm sticks to its knitting and pursues its primary competitive advantages. That to move outside of its core competitive advantages, to pick up some of these low lying fruits would distract it from the real job at hand. This is the job of those who ensure the governance model is upheld. At the same time, any value in the core competitive advantage that is not realized must be captured and steps taken to systemically realize the value from that point forward.  

To ensure that the firm remains within its competitive advantages there will be one interface developed with two different elements to it. This will be called the “Capabilities & Deployment Additions Interface.” The first element will be a summary of the additions to the “Dynamic Capabilities Interface.” By reviewing the current additions, i.e. all of the text added in the last quarter, to the interface. The user will be able to determine if the firm can maintain its overall focus on developing its capabilities in line with its goals and objectives. If it sees that it is suddenly researching the development of drill bits, it has wandered in an inappropriate direction. The second element is similar in its characteristics but uses the “Planning & Deployment Interface.” With the deployment of its capabilities it can see that the firm deployed its resources in a manner that is consistent with its objectives and goals. That no capabilities were deployed to commission drilling rigs or similar unrelated activities during the quarter. 

In the same way that the capabilities and deployment of them can be evaluated, the AFE and Work Orders can be reviewed for the quarter. These will provide an understanding of what the firm conducts in partnership through its Joint Operating Committees and with other producers in the industry. After reviewing these activities the user of the “Capabilities & Deployment Additions Interface'' will be able to ensure that the producer's focus remains consistent with its objectives. Any potential deviations could be dealt with through discussions with management and corrective actions taken. 

Focusing on where it can generate the greatest value is the firm's only concern. Pursuing the value available in other areas is a distraction that should be ignored. However, understanding that at the same time there is new value being generated as a result of the steep trajectories that the relevant and core strategic science is on. That this new value may be reflected in other areas of the firm, and needs to be captured is part of the “Capabilities & Deployment Additions Interface” of the Compliance & Governance module.

Governance Over the Capabilities Revenues

Through our discussion of the Preliminary Specification we have noted that the innovative and profitable oil & gas producer will have two distinct sources of revenue. The first is oil & gas production, and the second is the value added process of the specialized capabilities they provide to the various Joint Operating Committees, working groups they participate in, and other producers who may hire them for their specialized capabilities. This discussion deals with governance over these capabilities to ensure that revenues are recovered from the appropriate partners. 

With the increasing volume of work required for each barrel of oil produced, the demand for earth science & engineering resources continues to grow. The supply of these resources is constrained as increasing them in the short, mid and long term is difficult. People, Ideas & Objects approached the supply of these technical resources by developing software that defines and supports increased automation, divisions of labor and specialization throughout the industry. We have also identified that the “operator” designation inappropriately requires that their capabilities be developed to handle any and all contingencies within the producer firm. The operator designation creates unused and unusable surplus capacity of earth science & engineering resources trapped within each producer firm. By pooling the technical resources available from the Joint Operating Committee partners. This pooling will take the available capabilities of each producer and match them to the needs of the property. This will ensure the requirements are fulfilled. Additional capabilities can be acquired from the marketplace if necessary. Eliminating the otherwise trapped unused and unusable surplus capacity of these earth science & engineering resources in each producer firm. Capabilities provided in this fashion will be cost to the joint account at an industry standard cost based on the producers' revenue per employee factor. 

Revenues from the provisioning of engineering and geological capabilities to the Joint Operating Committee are necessary for the oil & gas business. Replacing the current operator overhead charges. With the expansion in the volume of work required for each barrel of oil produced there is commensurate difficulty in securing these capabilities in-house. There is also increased difficulty just maintaining the capabilities. The need for producers to build specialized capabilities becomes an issue of how to develop them if they cannot source a dedicated revenue stream to support them. By having a dedicated revenue stream to support the engineering and geological expenditures, the producer can better manage their operation, and build their capabilities. There is a further issue when we apply specialization and division of labor. The scope and scale of an oil & gas earth science & engineering capable operation, without the pooling concept being applied, becomes so broad as to render it completely uncommercial. 

In terms of governance the Preliminary Specification will provide the “Capabilities Revenues & Support Interface” in the Compliance & Governance module. This will provide a summary of all of the charges to the various joint accounts and working groups for any engineering and geological resources. This will be done during the period the user's request. This interface will also have targets for departments to achieve in terms of percentage cost recoveries and budgeted incomes. Individual joint accounts should be able to meet these targets. 

These net revenues should be displayed in the proper context on the “Capabilities Revenues & Support Interface.” That is to say they should be presented in a pro-forma income statement showing the costs of these resources, which would include resource costs and the various other costs of rent, technical support, equipment etc. This would show progress in how the firm met its targets. 

Governance Over Coordination Without Incentives

With our review of Professor Richard Langlois' writings we can see there will be an element of the Preliminary Specifications Compliance & Governance module that will be devoted to what we would call “operational governance.” We want to discuss the incentives vs. coordination issue of any operation that a Joint Operating Committee undertakes. This deals with the conflict between producers and service industry representatives and the high costs associated with field operations. Producers feel field costs are out of control and impose cost controls to better manage them. People, Ideas & Objects believes that coordination of field operations and improved communications will control costs. This will also improve outcomes. The coordination and communication comes through the modules in the Preliminary Specification, specifically Research & Capabilities and Knowledge & Learning modules. In his paper “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization” Professor Richard Langlois states. 

More generally, we are worried that conceptualizing all problems of economic organization as problems of aligning incentives not only misrepresents important phenomena but also hinders understanding other phenomena, such as the role of production costs in determining the boundaries of the firm. As we will argue, in fact, it may well pay off intellectually to pursue a research strategy that is essentially the flip-side of the coin, namely to assume that all incentive problems can be eliminated by assumption and concentrate on coordination (including communication) and production cost issues only. p.12.

Let's assume that People, Ideas & Objects Preliminary Specification is operational in your firm. You have the Industrial Command & Control, the Planning & Deployment Interface, the AFE and Job Order systems operational as expected however your results continue to disappoint and the cost overruns are tragic. How do we ensure that performance expectations are met and these poor performing situations are identified quickly and dealt with?

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 the capabilities view is to understand what is distinctive about firms as unitary, historical organizations of cooperating individuals. p. 17.

We should have an interface in the Compliance & Governance module that provides a user with the ability to oversee the operations being conducted in the Research & Capabilities and Knowledge & Learning modules. This interface should be called the “Operational Review & Governance Interface” which gives its users access to the operational information being reviewed. There they can interact, if desired, and supervise or mentor the project manager. This will ensure that objectives are met and costs are maintained. All with an understanding of how these objectives can be achieved, through enhanced coordination and communication, not through incentives. 

In saying this, it's more about governance than supervision. When things go wrong, you need to be able to fix them effectively, but you also don't want to interrupt the day-to-day operations unnecessarily.

Governance Over the Deployment of Capabilities

We are discussing the operational governance of the firm and Joint Operating Committee. A significant element of this discussion is the capabilities these organizations have access to. Earth science & engineering capabilities are documented in the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification. An innovative and profitable oil & gas producer has two key competitive advantages. Consequently, from the perspective of governance, these capabilities should be protected and kept for your firm only. Nothing could be further from the truth. Any usage of these capabilities will leak to member firms of the producer's Joint Operating Committees. That is an inevitable fact. And it is imperative that the firm consider as their priority the use of their capabilities as having the right information deployed to the right people at the right time. Governance must be concerned with the appropriate use of its capabilities, rather than information hoarding. From Professor Richard Langlois' “Modularity in Technology, Organization and Society.” 

This is the basic modularization of the market economy. It accords well with the modularization G. B. Richardson (1972) suggested in offering the concept of economic capabilities. By capabilities Richardson means "knowledge, experience, and skills" (1972, p. 888), a notion related to what Jensen and Meckling (1992) call "specific" knowledge and to what Hayek (1945) called "knowledge of the particular circumstances of time and place." For the most part, Richardson argues, firms will tend to specialize in activities requiring similar capabilities, that is, "in activities for which their capabilities offer some comparative advantage" (Richardson 1972, p. 888). p. 27.

What are we trying to achieve by employing these capabilities? It is to generate value. But more importantly to generate value for the owners represented on the Joint Operating Committee. In economic terms this value is called “externalities.” After the operation, after the deployment of the necessary capabilities at the right time by the right people the value should have been gained by the members of the Joint Operating Committee. 

So why don't we observe everywhere a perfectly atomistic modularization according to comparative advantage in capabilities - with no organizations of any significance, just workers wielding tools and trading in anonymous markets? We have already seen the outlines of several answers. The older property rights literature, we saw, would insist that the reason is externalities, notably the externalities of team work arising from the nature of the technology of production itself. The mainstream economics of organization is fixated on another possibility: because of highly specific assets, parties can threaten one another with pecuniary externalities ex post in a way that has real ex ante effects on efficiency (Klein, Crawford, and Alchian 1978; Williamson 1985). Richardson offers a somewhat different, and perhaps more fertile, alternative. Firms seek to specialize in activities for which their capabilities are similar: but production requires the coordination of complementary activities. Especially in a world of change, such coordination requires the transmission of information beyond what can be sent through the interface of the price system. As a consequence, qualitative coordination is necessary, and that need brings with it not only the organizational structure called the firm but also a variety of inter-firm relationships and interconnections as well." pp. 27 - 28.

If the Joint Operating Committee coordinates these capabilities in the appropriate way, the externalities will flow to the producers represented there. That is what the operation's governance is most concerned about. That there may be leakage of some explicit knowledge of these capabilities during the operation is immaterial to the firm's externalities and competitive position. Recall our review of Professor Giovanni Dosi for the Preliminary Specification. His research showed that it took equal and sometimes increased effort to copy another firm's capabilities than to generate them themselves. It is therefore more effective for a firm to focus on their key competitive advantages, their land & asset base, and their earth science & engineering capabilities. And the effective and efficient deployment of these competitive advantages on a “just in time” basis. 

We have asserted and I am certain that the oil & gas industry is moving towards its scientific basis as its primary competitive advantage. The days when financiers or lawyers could build viable producers based on their skills are numbered if not nonexistent. There is also a perception developed through the Preliminary Specification that the producer is a firm that maintains financial interests in a variety of Joint Operating Committees. That the producer will deploy their capabilities to these assets when and where they are needed and as they are developed. These capabilities deployment processes are under constant change and innovation. This level of change and innovation causes “Dynamic Transaction Costs” to be incurred, and people question the direction of the changes. What is needed is a method of governance in the Compliance & Governance module over the overall change process to ensure that the ship maintains its course and the costs remain in line. Quotations are from Professor Richard Langlois' “Transaction Costs in Real Time” paper. 

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-versa. 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. p. 99.

We introduced the “Operational Review & Governance Interface" and we will now continue its discussion. In our previous discussion, we discussed the ability to mentor the Project Manager and oversee or supervise the operation if required. What we need to discuss now is broader and more global in scope. An interface that encapsulates the entire firm's operations. This is so that the user can see that the firm's direction in terms of capabilities development is being optimized in its Joint Operating Committees, etc. It would be of questionable value if the firm expended valuable resources on developing its capabilities for multilateral fracing in shale formations. This is when none of its Joint Operating Committees were deploying, or able to deploy the technologies. 

With the “Operational Review & Governance Interface” the user can review the entire operation as it happens. From the “Dynamic Capabilities Interface” to the “Planning & Deployment Interface,” AFE, Job Order and “Lessons Learned Interface," review all of the actions taken and the documentation generated during the operation to determine what was the critical cause of the success or failure of the operation. This could be done in fine detail or in summary form to oversee the many operations conducted. 

Another variable captured by the Preliminary Specification is the Dynamic Transaction Costs. These are the costs associated with change and innovation. When people run into these charges, they will be able to tag them with the Dynamic Transaction Costs tag for further review. This will be a red flag in the “Operation Review & Governance Interface” for the user to trigger. When they see high levels of “Dynamic Transaction Costs" they know the operation has run into high levels of change and / or innovation. Therefore they will be able to see the implications of these costs in the knowledge and information at the interface. And know that some significant change or innovation will follow.