Showing posts with label Pisano. Show all posts
Showing posts with label Pisano. Show all posts

Wednesday, March 10, 2010

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

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

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

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

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

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

  • Technical Innovation & Organizational innovation are interdependent.
If we are to increase the volume of science and engineering involved in each barrel of oil equivalent. Then we must organize ourselves in ways to define and support these desired changes.
  • New forms of business organization & Institutional arrangements are invented to solve specific economic problems.
In other words we need to act. This change will not occur on its own. We have to design the solutions to today's problems. This point should take on a greater sense of urgency from the point of view that we are standing on the shoulders of several generations of giants. Any fall in the performance of the existing bureaucracy could be far more severe then we assume. Moving back to manual systems is not an option.
  • Organizational & Institutional innovation is an evolutionary process - nothing guarantees "we get it right every time".
People, Ideas & Objects is providing a software development capability. One that adapts based on input from the user community. This is not developing to a fixed point, but designed to hit a moving target. I foresee no time in which People, Ideas & Objects will not have substantial work to be done. And this level of work is just as applicable today as it will be 20 years from now.


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

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

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

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

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

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

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

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

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

26 Marketplaces.

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



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

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

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Sunday, February 28, 2010

Pisano Science Based Businesses Part III

I have removed a large portion, Sections III and IV, of this paper. These sections discuss the "Science Based Business" in terms of its classifications and definitions. I recommend that everyone read the paper, however, I think it is strictly academic to classify the energy industry as a science based business. It is interesting reading, however preaching to the converted would be a waste of our readers time.

This last part of our review of Professor Pisano's paper "The Evolution of Science-Based Business: Innovating How We Innovate" concludes with some powerful application of the lessons from Professor Alfred D. Chandler.

VI. Applying the Lessons of Chandler

Why are we concerned about the performance of the oil and gas industry? And why does that concern center on the organizational structure of the oil and gas firm and it's associated markets? Professor Pisano answers these questions in a way that everyone could generally agree.
The fundamental lesson from Chandler is that while technological progress creates potential for economic growth, that potential can only be realized with complementary innovation in organizations, institutions, and management. This lesson has clear implications for science‐based sectors of the economy. Progress in the science bases of medicine, agriculture, advanced materials, and energy has enormous potential in coming decades. Yet, this potential will go unrealized without the design of appropriate organizational, institutional, and managerial models. One purpose of this essay was to show that, using the case of biotech as a reference point, we have not yet found an appropriate model for science‐based business. pp. 27 - 28
I agree with Professor Pisano, "we have not yet found an appropriate model for science-based business". Is the Joint Operating Committee the ideal organizational construct for the energy industry? We don't know, that is we won't know until such time as this research has been put to the test. In our research we found the science and innovation need to have certain characteristics that are inherent in the JOC. This is a direct result of the JOC being the cultural norm for global oil and gas operations. The problem is the JOC is not the ways and means of the industry from a compliance and governance point of view. Those frameworks, for whatever historical reason, have been handled by the hierarchy.

What this software development project does is move the compliance and governance of the hierarchy into alignment with the five frameworks of the JOC. To align all of these frameworks within the firm and market definitions of the Draft Specification will provide tangible benefits. And help the energy industry to better meet the markets demand for energy. But will it be the ideal organizational construct for this science based business? We don't know, and we won't know until such time that we can learn from the task at hand. I can assure you the bureaucracy is not keeping up to the demands of today, and that it is not going to in the future. But is the JOC the ideal science based business organizational construct for energy? This may be the better question we should ask ourselves in the long run. And ensure that the means to discover the ideal construct, if it isn't the JOC, will be discovered through the process of People, Ideas & Objects and the Community of Independent Service Providers.
Historical experience both before and after the emergence of biotech shows the limits of both ends of the organizational continuum: the visible hand of hierarchies and the invisible hand of markets. Hybrid organizational forms that mix elements of markets and hierarchies would therefore seem to be an attractive avenue for innovation. p. 28
The hybrid model is inherent in the People, Ideas & Objects Draft Specification. In September 24, 2007's blog post I detailed the optimal / logical boundaries of firms and markets. This was based on the review of Professor Carliss Baldwin's paper "Modularity, Transactions, and the Boundaries of Firms: A Synthesis" That table is reconstructed here.


ConstructMarketFirm
Joint Operating CommitteePs
Military Styled Command and Control (Governance)sP
Transaction CostssP
Production CostsPs
InnovationPs
Routine, compliance and accountabilitysP
ResearchsP
Development (the D in R&D)Ps
Financial FrameworkPs
Legal FrameworkPs
Cultural FrameworkPs
Operational Decision Making FrameworkPs



P = Primary
s = secondary


The inclusion of the invisible hand and the visible hand are also present in the Draft Specification. I included Professor Richard N. Langlois work in the Vanishing Hand in a June 24, 2007 blog post. Professor Langlois' vanishing hand hypothesis is directly pertinent to the discussion of finding the optimal organizational construct for the science based business of oil and gas.
"The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates." p. 3
Clearly the research to determine if the JOC is the appropriate organizational construct takes into consideration the research that has been conducted to date. This research is incomplete from the point of view of determining if there could be more attributes, definitions or characteristics in which to add to the software. However, my homework has been done, and it is necessary that the industry fund these software developments before we conclude if the JOC is the right organization, and if we need to conduct any additional research. Back to Professor Pisano who discusses "Organizational Networks" a term that resonates with me.
Organizational networks offer another avenue for innovation. Chandler argued that the firm, not the transaction, was the most important unit of analysis (Chandler 1992) for understanding the boundaries of organizations and structure. Alternatively, it could be argued that in contexts that mix markets and hierarchies, the network of organizations becomes the most interesting unit of analysis (see e.g. Miles and Snow, 1986, Stuart 1998). p. 29
and
Once we move to organizations that are connected in durable networks, this notion becomes much more complicated. The value of the network and the value of individual “firms” in that network become harder to disentangle. p. 29
Call it what you will, what this post clearly reflects is this is the direction that industries must travel. To suggest that the hierarchy will survive the next 10 years is difficult to conceive. Here Pisano asks a pointed question at management itself.
In an essay in honor of Alfred Chandler, an author would be remiss not to mention “management technology” as a critical component of innovation. Chandler documented the emergence of the professional manager and the innovations in managerial techniques needed to run the organizations he studied. This raises the question of whether current “management technology’ is suited to the needs of science‐based businesses. Indeed, the very notion of “professional manager”, while seemingly quaint, indeed characterizes much of the division of labor between scientists and manager today. Consider that today, scientists receive no formal training in management and MBAs receive no training in science. This is a striking gap. The professions of management and the professions of science are still largely separate. p. 30
For what its worth, I agree that the science based business is poorly served by the current "management technology". This is an area that requires as much research as determining if the JOC is the optimal organizational construct for the science based business of oil and gas. Professor Pisano puts the value of these avenues of research in context with this closing comment.
Like railroads and large scale manufacturing enterprises 100 years ago, science based businesses will be a potent source of economic growth in the 21st century. And now, as then, these new businesses demand new organizational forms and new institutional arrangements. In short, we are once again confronted by a serious need to invent new organizational forms and new institutional arrangements to deal with a new set of economic problems. When it comes to the topic of innovation in business organization, there is no better teacher than Alfred Chandler. p. 30
March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.


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

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Saturday, February 27, 2010

Pisano Science Based Businesses Part II

In our first post on this paper we introduced the scope of Professor Pisano's research in Science Based Businesses. It is reasonable to assume that everyone that is familiar with the processes of exploration and production would agree that it qualifies as a science based business. In this second post we will focus on the influence of Professor Alfred D. Chandler in Professor Pisano's work.

II. Chandler’s Core Propositions

Professor Pisano reintroduces us to Professor Alfred D. Chandler and his work on organizational capabilities and what Pisano calls "Chandler's core proposition". People, Ideas & Objects needs to build the software necessary to support and identify the industry standard Joint Operating Committee. This is in order for the earth science and engineering disciplines to be the driving force in what happens in oil and gas. Innovation on these sciences will be the source of value generation in the industry. Up until recently, innovation was focused on the management discipline and the desire to conduct "best practices" and balance some score-cards. Thankfully those days are over.

Through his studies of the rise of the modern corporation and managerial capitalism in the United States, Chandler advanced three core propositions: 1) technological innovation and organizational innovation are interdependent; 2) new forms of business organization and institutional arrangements are invented to solve specific economic problems; and 3) organizational and institutional innovation is an evolutionary process—nothing guarantees “we get it right” every time. Together, these propositions constitute what might be called a “Chandlerian perspective” on the structure and organization of economic activity. p. 5
1) The Interdependence of Technological and Organizational Innovation

It has been argued that moving the compliance and governance of the hierarchy into alignment with the JOC's cultural, legal, financial, operational decision making and communication frameworks will provide enhanced performance. When we identify and support these changes within the People, Ideas & Objects application modules. Innovation on the earth science and engineering disciplines will be facilitated and advanced. Chandler teaches us that technological innovation does not occur without organizational innovation.
A sub‐set of the innovation community, starting with the work of Nelson and Winter (1982), has long recognized that the “right” institutional arrangements play a critical role in facilitating technical advance and the diffusion of innovations. p. 5
These concepts were reinforced on this blog with recent posts from MIT Professor Wanda Orlikowski and Harvard Professor Carliss Baldwin. Orlikowski's Structurational Model of Technology was used in the Preliminary Research Report to identify technologies influence in organizations. Summarizing her work in the statement that SAP is the bureaucracy. Professor Baldwin's Mirror Hypothesis also identified similar points.

2) Organizational and Institutional Innovation as the Product of Human Invention

The Draft Specification deals with a variety of problems that exist in the industry. One of these problems is the redundant building and rebuilding of capabilities within each producer firm. The ability to resolve any and all possible issues needs to be handled by the firm, and therefore, these capabilities are created within each producer. In the integrated producers we see the same technical capabilities being built within Exxon, Shell, BP, Chevron and others. These are duplications and have reached a size and scope that they can no longer be independently developed and maintained. The underlying sciences are advancing too quickly, and the population of human resources are reaching their limits. What the Draft Specification does is pool these capabilities within the Resource Marketplace Module to enable each and every Joint Operating Committee the ability to dynamically generate the capabilities that they need.
Today, it is easy to take for granted such things as separation of ownership from management, hierarchical organizations, multi‐business corporations, capital markets, accounting and control systems, and other scaffolding of modern economies, as if they were somehow “natural.” Chandler teaches us that there is nothing natural about them. They were inventions. Indeed, virtually every aspect of the business world around us—every organizational form, every management technique, every formal and informal institutional arrangement, every principle of management, and every management function—is the product of human invention. Chandler also helps us understand that often‐but not always‐‐these inventions were made in response to very specific economic problems. pp. 6 - 7
To have this dynamic capability available to those within the industry requires the new organizational models, the JOC, and the People, Ideas & Objects software necessary to identify and support the JOC and the Resource Marketplace. Spontaneous order will not work when we are standing on the shoulders of so many generations of giants. We need to act!

3) Organizational and Institutional Innovation As an Evolutionary Process

We have many significant trends converging at the same time. The Information & Communication Technological Revolution, the transformation of the oil and gas industry to a more complex scientific footing, the boardroom power shifts, and the economic forces that are creating issues and opportunities for all concerned. The last thing we need to do is to sit back and wait for the eventual day when all these forces are correctly aligned and the world breaks out in peace. It doesn't happen that way. We have to act!
The first two points above provide a false impression that economic need and organizational / institutional innovation mesh tightly. But Chandler teaches us that such a strict functionalist interpretation is flawed. Economic needs arise, but the response of organizations is slow, uneven, and not always perfect. p. 7
I would assert that the slow industry response to People, Ideas & Objects is attributable to the fact that it is the bureaucracies that are dictating the pace of change. They know that if they don't sponsor these software developments, they won't get built. I know they know this because I told them in the Preliminary Research Report. Their interpretation is wrong, however, they don't see it that way. That is why the appeal of these software developments are focused on the ownership class of the oil and gas industry. The bureaucracy has it pretty good right now, why change.
The notion that novel institutions and organizations always arise to enhance economic efficiency does not stand the test of historical analysis. p. 8
We must act. This muddling along is heading the oil and gas industry into a situation where the energy consumer will not be able to source their energy. Energy is oxygen to advanced economies. To restrict the volume of available energy limits the potential of man kind.
There are many potential transformative forces shaping business organization in the 21st century. The one I would like to focus on in the remainder of this essay concerns science, and in particular, the way in which business participates in and shapes science. Recent decades have witnessed intensive organizational experimentation in the way science is generated, diffused, and commercialized. Advances in the sciences of life, energy, and materials offer huge promise both to drive economic growth and improve welfare. Yet, to believe that promise will be realized without organizational and institutional innovation would be to ignore the lessons of Chandler. pp. 8 - 9
March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

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

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Friday, February 26, 2010

Pisano, Science Based Businesses Part I

Based on the weight of this new paper. We are including Harvard Professor Gary P. Pisano to our list of closely watched researchers. We haven't had the opportunity to add anyone to our list for many years. That's not as a result of a lack of quality content, it's that we are playing catch-up in terms of the work that has been done in the past 20 years. Look for the Pisano label to aggregate the posts that highlight his content. This first Part will highlight some of the assumptions that Professor Pisano is using, the extent of his research and reviews the Introduction of his new paper. The Evolution of Science-Based Business: Innovating How We Innovate.

For the work that we are doing here at People, Ideas & Objects, and particularly the oil and gas producers, this paper has substantial value. The Preliminary Research Report hypothesized the oil and gas industries underlying earth science and engineering disciplines were escalating. Each barrel of oil would require exponential volumes of these sciences as time passed. This underlying demand change in the sciences would lead to higher prices to offset the higher costs of exploration and production, hence rewarding the innovative oil and gas producer. This is the situation in the oil and gas marketplace today.

Professor Pisano's interests are in science based businesses. But more importantly, in the context of organizational and technological innovation.

Alfred Chandler taught us that organizational innovation and technological innovation are equal partners in the process of economic growth. Indeed, one often requires the other. In the late 19th and early 20th century, the large‐scale modern corporation both shaped and was shaped by advances in electrification, mass production, and transportation. Today, the specific technologies driving growth are, of course, quite different than they were a century ago. But, the fundamental lesson—that these technologies may require new organizational forms—is as relevant today now as it was then. p. 2
I would argue that technologies enable new organizational forms. Through our review of Harvard Professor Carliss Baldwin's research. People, Ideas & Objects have detailed a modular specification and a division between markets and firms in the Draft Specification. Information Technology (IT) defines and supports organizational constructs. And the People, Ideas & Objects software development capability provides the organizational flexibility that the producer will soon demand as necessary.

It is inherent in the Draft Specification that the market take a larger role in the science and innovation of the industry. The question is therefore asked, is the Draft Specification correct in it's assumption that research and innovation can be conducted within "markets" as opposed to in "firms"?
I argue that science‐based businesses face unique challenges as they straddle two worlds with very different time horizons, risks, expectations, and norms. Whereas once these challenges were managed inside the boundaries of corporate R&D labs—under the auspices of Chandler’s visible hand—today the invisible hand of markets increasingly governs them. An assessment of this form of governance against the requirements of science‐based businesses suggests a gap and a need for organizational innovation. The essay concludes with a discussion of what Chandler can teach us about science‐based business, and the organizational and institutional implications of science‐based business. p. 4
Elements of scientific risk are everywhere in the oil and gas industry. Outcomes are not necessarily predictable, and the lead times from idea to commercial success is substantial. The oil and gas industry qualifies as a science based business in Professor Pisano's strict interpretation.

In this paper Professor Pisano speaks about the different business models of how these science based businesses fund their research. Noting that the IBM, AT&T, 3M and Xerox research parks are reflective of an older era. If we accept Exxon's estimate that $20 trillion over 20 years is the required capital expenditure. We can ask is this demand for capital beyond the "normal" allocation mechanisms available in the marketplace? Are the capital and debt markets sophisticated enough to be able to determine which producers will be the winners and losers? I have argued throughout the Preliminary Research Report and this blog that the innovative producer will have the price mechanism reward innovative and scientific success.

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

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