Showing posts with label Review. Show all posts
Showing posts with label Review. Show all posts

Monday, December 23, 2013

A Year in Review, a Must Read

We come to the close of 2013 and our first full year with the Preliminary Specification in place. We spent most of the year discussing the content of the Preliminary Specification and fully exploring the implications of its use. Clearly it has value to the marketplace. Now that it has been updated and edited I don’t feel too bad making my readers persevere through it. It is ready for prime time.

In the new year things will change from a product focus to how that product will be implemented in the marketplace. This will detail how the budget will be spent and who will be involved. We have the “what” clearly defined in the Preliminary Specification. We now have to detail the “how” it will be implemented. Needless to say this will involve you the reader as this will touch on every aspect of the oil and gas industry. Most of the business will be new business and the level of opportunity will be unprecedented. So if you have an interest in anything associated with the user community, software development or the service providers stay tuned.

As we move into the second year of our ten year plan we find that our ambitions are once again put in check. It would be nice to start some development work, however the bureaucracy are still in control and are not in anyway interested in seeing this project develop. These are times when we need to be patient and keep our powder dry and our candle lit. Our time will come when our ability to fight the bureaucracy will lead to our success in the marketplace. If I had set out to complete what we have achieved in the first year of our ten year plan I think I would have been accused of being delusional. We really did have a good year in the marketplace. And with that it is best to wish you all a Merry Christmas and a prosperous New Year. We'll see you all back here on January 6, 2014.

(Please note that the assessment fees for 2014 have been set at $2.00 per barrel of oil equivalent.)

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

Wednesday, January 26, 2011

Professor Giovanni Dosi, Part XVII, a Conclusion


Our review of Professor Giovanni Dosi’s 1988 paper “Sources, Procedures, and Microeconomic Effects of Innovation” has provided us with the evidence that the Joint Operating Committee is the “innovation” framework for all oil and gas producers. Identifying the “innovation” framework as part of the Joint Operating Committee along with the legal, financial, operational decision making, cultural, communication and strategic frameworks. People, Ideas & Objects Draft and Preliminary Specifications identify and support the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. We provide this by moving the compliance and governance frameworks of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee. Enabling a greater speed, accountability and innovativeness of the producer.

It is now time for producers to act. Review of our Revenue Model will inform producers how they can participate in the development of People, Ideas & Objects Preliminary Specification. Producers can contact me here for further information, or to begin the process of their participation.

Monday, January 17, 2011

Professor Giovanni Dosi, Part XVI

With this post we have completed the review of Professor Giovanni Dosi’s 1988 paper “Sources, Procedures and Microeconomic Effects of Innovation”. After this post I will have some closing comments and a review of the papers highlights in future posts.

Characteristics of Innovation and Patterns of Industrial Change.

Professor Dosi states that the rate of change and observed dynamics of industrial performance can be attributed to the following components:

Innovative learning by single firms augmented by universities and government agencies. 

People, Ideas & Objects asks: what would be the effect of increasing the exposure from a single firm, to a collaboration between several firms through the Joint Operating Committee? Would this facilitate a marked increase in Joint Operating Committee knowledge? And would this knowledge therefore facilitate an increased rate of collaborations leading to an increased level of understanding and pace of innovativeness and scientific knowledge? Or as Dosi notes:

The diffusion of innovation, the knowledge of innovative products and processes. 

Professor Dosi states that his general interpretative conjectures are: (And these are an important consideration in determining the capability and capacity to innovate.)

First, the empirical variety in the patterns of industrial change is explained by different combinations of selection, learning, and diffusion and different learning mechanisms. (p. 1159)
Second the nature of each technological paradigm, with its innovative opportunities, appropriability conditions and so on help to explain the observed inter-sectoral differences in the importance of the above three processes. (p. 1159)

Each successful innovation creates an asymmetry effect, or an overall increase in competitive position of the entire industry. However, that does not necessarily increase the competitiveness of all the participants of the industry. The ability of laggard companies to improve their competitive position helps to form new positions within their industries. These laggard companies generally are able to move further and quicker through their imitation of leading companies. However, the primary differentiating component of competition based on innovation in process and product is attributable to the innovative capability of the firm.  ie. a laggard will remain a laggard without the direct and active development of innovative appropriability conditions.

Professor Dosi finds these points difficult to quantify and prove, but states these may be tacitly understood. People, Ideas & Objects asserts that that was the case in 1988 at the time this article was written, however, the laggards ability to “keep up” or even “catch up” may have progressively diminished through the application of information technology during the 2000’s.

There is a determining paradox for the ability to innovate based on imitation or strict Research and Development. Companies can copy others innovations in industries with minimal asymmetry, (where they are all the same). Whereas industries that are asymmetric (like oil and gas) or have large variances in their capabilities are best served by differentiating themselves by pursuit of Research and Development.

One can see with the difficulty of this discussion; how and where innovation and research & development are done in oil and gas. The discussion to this point is ripe with conflict and contradictions, the raw material for solutions. In the Draft Specification’s eleven modules their are two specific modules that deal with these problems. One module is the Research & Capabilities Module which is the Firm based module, the other a Joint Operating Committee module called the Knowledge & Learning Module. Please review those as to how this division of labor is determined in the People, Ideas & Objects Draft Specification.

It is now time for producers to act. Review of our Revenue Model will inform producers how they can participate in the development of People, Ideas & Objects Preliminary Specification. Producers can contact me here for further information, or to begin the process of their participation.

Monday, January 10, 2011

Professor Giovanni Dosi, Part XV

Returning to our review of Professor Giovanni Dosi’s paper “Sources, Procedures and Microeconomic Effects of Innovation” in the Journal of Economic Literature Vol. XXVI (September 1988), pp. 1120 - 1171. Recall this review of Dosi was part of our overall review of the Preliminary Research report; of which we have been aggregating all of these review posts under this blogs label “Review”. I highly recommend reviewing Professor Dosi material in detail. His 1988 paper has become one of the critical resources in the area of innovation and our use of this document was instrumental in determining the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer.

Innovation and Industrial Change: Learning and Selection

A. The Innovation Process and Industrial Structures

In this post Professor Dosi asserts that the makeup of industries and companies is attributable not only to the endogenous force of competition. Innovation and imitation also make up the fundamental structure of an industry. “Market structure and technological performance are endogenously generated by three underlying sets of determinants.”

Each of these three components is evident in the marketplace of an oil and gas producer today as reflected in:

  • The structure of demand.

Satisfying the insatiable demand of the global energy marketplace is critical to the advancement of all societies. American and western societies as well as Chinese and developing societies face real challenges in sourcing adequate long term sources of energy. The long term demands on the energy producer have never been so great.

  • The nature and strength of opportunities for technological advancement.

The nature and opportunities for technological advancement lead one to believe mankind has never faced the level of opportunity and acceleration that is possible today. The industrial mechanization of the past 100 years combined with the prospective mechanization of intellectual pursuits combine to markedly appreciate the value of human life. The availability of energy will be a critical element of this advancement.

  • The ability of firms to appropriate the returns from private investment in research and development.

The oil and gas industry is moving closer to its earth science and engineering principles. Innovation, research and development in both the producer firm and the market are and will become more commercial in nature. It is on the basis of success or failure of these factors that will determine the success or failure of the firm within the industry.

Focusing these three components through the Joint Operating Committee is what People, Ideas & Objects provides through the Draft Specification. By simply moving the compliance and governance frameworks of the hierarchy over into alignment with the legal, financial, operational decision making, cultural, communication and innovation frameworks of the Joint Operating Committee. Provides the producer with greater speed, innovativeness and accountability.  But it also enables the producer to focus on innovation, research and development.

It is now time for producers to act. Review of our Revenue Model will inform producers how they can participate in the development of People, Ideas & Objects Preliminary Specification. Producers can contact me here for further information, or to begin the process of their participation.

Friday, December 03, 2010

Professor Giovanni Dosi, Part XIV

As technical paradigms are introduced companies accept and use these innovative capabilities at different rates. This rate of acceptance can be classified as early innovators, imitators and fence sitters. Thus a satisfactory understanding of the relationship between innovation and distribution of firms structural and performance characteristics also implies an analysis of the learning and competitive process through which an industry changes.

We have also seen over the past twenty years an interesting trend that has created significant differences in the stratification of the oil and gas industry in terms of the size of the producer and their associated innovativeness. The small organization was able to purchase reserves and facilities from the open market, or their previous owners, only to substantially increase the inherent value through increased production and / or performance. We can conclude that the bureaucracy inherent in the hierarchy had stifled the innovativeness in the larger organizations and most disturbing is the lack of concern or identification of this as an issue over the past number of decades.

Professor Dosi notes;

Finally, empirical studies often show the coexistence, within the same industry and for identical environmental incentives, of widely different strategies related to innovation, pricing, R & D, investment and so on. Specifically with regard to innovation one notices a range of strategies concerning whether or not to undertake R & D; being an inventor or an early imitator, or “wait and see”; the amount of investment in R & D; the choice between “incremental; and risky projects, and so on (see Charles Carter and Bruce Williams 1957; Freeman 1982 and the bibliography cited therein). Call these differences behavioral diversity. p. 1157
Changing the innovative behaviour of one producer carries a scope of change that is as broad and as diverse as is contemplated in the business world. Change at this scale in many instances can not be managed within the organization but needs to be managed through the forces of creative destruction in the greater economy. A time of dynamic change driven by the organizational changes focused around the innovative Joint Operating Committee.

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

Thursday, December 02, 2010

Professor Giovanni Dosi, Part XIII

Professor Giovanni Dosi notes that most of the innovation occurring during the industrial revolution had been via the “technical trajectories of increasing mechanization of production and increasing exploitation of economies of scale.” However, these innovations have been on the basis of the "trade-offs between volume of production and flexibility of the production lines."

Robotics has had a tremendous impact on the makeup and mix of production runs and flexibility, the efficiency of small production runs, and the likely increase in the importance of plant related economies of scale.

Therefore it is concluded by Dosi that the increased flexibility afforded by robotics and automation, motivated primarily through the more speculative nature of demand prediction, has had the effect of decreasing the productivity effect of additional innovations. Ultimately, however, the expectation of the innovations effect is that it will move the costs lower over the smaller production volumes. We are now clearly seeing this in the innovation and diversity of offerings in the vehicle industry. (Greater costs being allocated over smaller production runs.)

In oil and gas we see what might be considered a parallel situation. The business cycle is more dependent on the reserve life of new reserves. With rapid three-year declines, specifically in gas, the question becomes: is this a product of the cumulative innovativeness in exploiting the technologies that have developed? Or, is the use and application of oil and gas technology yet to be tested against a more exploration style mindset consistent with the risk - reward of the current market pricing of the commodities.

Either way it appears that the exploration and exploitation of oil and gas reserves has and always will be a function of the technology based on the underlying sciences. This is undeniable, and may also be the cause of the shorter-term life cycle and diminished size of new reserves, which is agreed by most to be a trend that will continue. This reserve size and deliver-ability is paralleled in Dosi’s discussion of how innovations in industrial companies have been diluted by demand prediction and lower production volumes. Scientific and engineering innovations accelerating the extraction of oil and gas reserves and this trend continuing for the foreseeable future.

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


Wednesday, December 01, 2010

Professor Giovanni Dosi, Part XII

We return to our review of Professor Giovanni Dosi’s “Sources, Procedures, and Microeconomic Effects of Innovation”. Earlier we noted that the Joint Operating Committee (JOC) is the ideal or key organizational construct for innovation. There an innovation framework operates in alignment with the legal, financial, operational decision making, cultural and communication frameworks of the Joint Operating Committee. And if we moved the compliance and governance frameworks from the hierarchy into alignment with the six frameworks of the JOC, as People, Ideas & Objects suggests in the Draft Specification, we would achieve a greater speed, accountability and ‘innovativeness’ in the business of the oil and gas producer.

Professor Dosi discusses the phenomenon introduced earlier in our review when he asks, “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities, or both?”, and now considers the relationship between innovative activities and the dynamics of industrial structures and performance. Why do some companies attain greater value from Innovation?

Professor Dosi (1988) reference to the Schumpeterian hypothesis, “that bigness is relatively more conducive to innovation, that concentration and market power affect the propensity to innovate” and his rejection of that premise is evident in this paper’s following three points.

  • First, although “there appears to be roughly a log linear relation within industries between firm size and R & D expenditures”, upon closer investigation, “estimates show roughly non-decreasing return of innovative process to firm size.” This is probably attributable to the fact that very large and very small firms conduct most R & D. p. 1151
  • Second, although the expenditures in R & D incurred by large firms are impressive from a total expenditure perspective, the aggregate expenditures of small firms on a global basis becomes far greater in aggregate than the large business. p. 1151
  • Third, money is not necessarily a good indicator of innovativeness. Large variances within industries can clearly be identified irrespective of firm size. p. 1152

Therefore “bigness” is not necessarily an element that enhances innovation. This might be intuitively understood by the small oil and gas producers ability to punch above their weight.

Dosi (1988) provides three caveats to the three differences noted.

  • “Statistical proxies cannot capture aspects of technical change based on informal learning” p. 1152
  • Secondly, “differences in businesses and business lines (and business or product life cycles) may provide discrepancies in comparison of “like” firms. p. 1152
  • Thirdly, many firms are expending significant research dollars in keeping up with other firms innovations.  p. 1152
Or in summary, money is not necessarily a determinant of innovative success.

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

Monday, October 18, 2010

Professor Giovanni Dosi, Part XI

Our review of the Preliminary Research Report, Professor Dosi’s paper “Sources, Procedures and Microeconomic Effects of Innovation” and the Draft Specification is providing evidence to answer two of our research questions. I think it is becoming clear that innovation can be the result, as our first research question asks, of a quantifiable and replicable process. What also is becoming clear is the lack of the processes that facilitate innovation, will most certainly lead to a lack of innovation. That to leave the process of innovation to chance is irresponsible, reckless and bound to fail.

The second research question we are seeing the answer to; is the Joint Operating Committee is the optimal organizational construct to identify and support innovation. Building the systems that support the legal, financial, operational decision making, cultural and communication frameworks of the JOC is our focus. However, what I am realizing is that innovation is also a framework of the JOC. That is to say we should be stating that the Joint Operating Committee is the legal, financial, operational decision making, cultural, communication and innovation framework of all producers. As a result of this realization I have changed the header to this blog to reflect this change.

Continuing with our review of Professor Dosi’s paper, he begins by summarizing that businesses commit to innovation stemming from exogenous scientific factors and endogenously accumulated capabilities developed by their respective firms. His general point is that “observed sectoral patterns of technical change are the result of the interplay between various sorts of market-inducements, on the one hand, and opportunity and appropriability combinations, on the other”. p. 1141

What opportunities are and will be constrained by not adopting a more innovative organizational structure? If the geological and engineering sciences progress in a substantial manner in the next few years, how will oil and gas companies adopt, employ, test, and prove these science's development without an enhanced capacity to innovate? How much of the drive towards innovation is the beginning of the understanding necessary to expand the science? How much of an inducement are the current commodity prices providing the global competition to innovate? Until producers capture these “appropriabilities” within their ERP systems, such as the Draft Specification does, innovation will be left to chance.

I am not asserting that efforts in the past were not innovative or moved the science substantially. The issue People, Ideas & Objects is raising is that the pace and speed of the science’s development in the near to mid-term, and particularly the long term, will accelerate based on the fact that, globally, reserve replacement continues to be progressively more challenging, and the prices realized for the commodities have begun to reflect these challenges. Professor Dosi (1988) concludes this section with “Finally, the evolution of the economic environment in the longer term, is instrumental in the selection of new technological paradigms, and, thus in the long term selection of the fundamental directions and procedures of innovative search.” p. 1142

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

Thursday, October 14, 2010

Professor Giovanni Dosi, Part X

In our review of Professor Giovanni Dosi’s paper, “Sources, Procedures, and Microeconomic Effects of Innovation“ we now ask what are the incentives to invest in the discovery of innovations and there development? Will these depend on the incentives that interested and motivated agents perceive in terms of expected economic returns? Professor Dosi calls “appropriability those properties of technological knowledge and technical artifacts, of markets and the legal environment that permit innovations as rent yielding assets against competitor’s imitation”.

Professor Dosi (1988) notes a study conducted by Richard Levin et al 1984, in which they studied “the varying empirical significance of appropriability devices of (a) patents, (b) secrecy, (c) lead times, (d) costs and time required for duplication, (e) learning curve effects, (f) superior sales and service efforts.” Professor Dosi (1988) observed, “that lead times and learning cures are relatively more effective ways of protecting process innovations, and patents a more effective way to protect product innovations.” Dosi concludes. “Finally, there appears to be quite significant inter-industrial variance in the importance of the various ways of protecting innovations and in the overall degrees of appropriability”. (p. 1139)

Oil and gas producers are focused on process innovations, industry suppliers on product innovations. Recognizing this division of labor is how People, Ideas & Objects Resource Marketplace module provides and facilitates a greater interaction between producers and suppliers. Each group is concerned with securing their innovative capabilities without creating any conflict with the other. (The producer looking to lead times, learning curves while suppliers using patents to protect their innovations and capabilities.)

Levin states that the control of complementary technologies becomes a “rent-earning firm-specific asset”. Professor Dosi (1988) states “in general, it must be noticed that the partly tacit nature of innovative knowledge and its characteristics of partial private appropriability makes imitation a creative process, which involves search, which is not wholly distinct from the search for new development, and which is economically expensive - sometimes even more expensive then the original innovation, and applies to both patented and non-patented innovations.” (p. 1140)

With the fast changing science and technological paradigms and steep trajectories of the industry, the need to have the capability to innovate will be needed for each producer to develop on their own. If the costs of duplication are as steep as the costs of developing the internal capabilities, the producers should then rely on their process innovations to carry their firm. However, that also imputes that a greater level of co-dependency exists. Partners in the Joint Operating Committee will have resources available to commit to the projects and suppliers will have contributions as well. As the Resource Marketplace module seeks to eliminate the redundant and mutually exclusive capabilities being built within each silo’d corporation. The proposed alternative in the Draft Specification is to rely on the marketplace for development and deployment of these innovations.

To restate this another way. With the dual constraints of; the difficulty in increasing the volume of earth science and engineering resources in a material way, and secondly, the demand for greater volumes of science and engineering in each barrel of oil, the need for the producer to rely on the “market” (within the Resource Marketplace module) to define and support their innovative appropriability is a necessity. A means to effectively pool and manage the technical resources made available through the participants in the Joint Operating Committee and service industries, as contemplated in the Resource Marketplace module and Military Command & Control Metaphor.

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

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Tuesday, October 12, 2010

Professor Giovanni Dosi, Part IX

And we’re back from a refreshing break. When we look at the decision to implement a new and innovative idea within an oil and gas property, we look to determine where the decision rights reside. In oil and gas the operational decision making authority resides with the Joint Operating Committee. Therefore to increase a firm or industries innovative-ness we have to move the technological and science based innovations closer to the decision making authority in order for them to be implemented. Whereas there may be a meeting of the minds on the course of actions to take, understandably this is also the area where the bureaucracy lurks. Time, or the pace of turnover of these processes, also becomes a critical issue.

In today’s post we will be continuing on with our look at technological paradigms and the effect they have on scientific and innovative trajectories in oil and gas. When discussing these points on innovation, it is important 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. Recognizing the Joint Operating Committee as the key organizational construct, as is done in the Draft Specification, is the means to deal with these scientific paradigms and trajectories, and hence, an area where significant process automation can and will take place through the development of People, Ideas & Objects software applications.

With this process in mind, we note that Professor Dosi suggests two separate phenomenon are observed:

  • First, new technological paradigms have continuously brought forward new opportunities for product development and productivity increases. p. 1138
  • 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

Both of these points are inherently understood. If we approach this process to deal with the administrative attributes within the People, Ideas & Objects application modules, we have an opportunity to release those “new opportunities for product development and productivity increases”. We however, also need to understand that the dynamics of these processes require constant “mechanization, specialization and division of labor” as has been contemplated in the software development capability that People, Ideas & Objects provides. Professor Dosi notes one of the benefits of this.
Similarly, new technological paradigms, directly and indirectly -- via their effects on “old” ones -- generally prevent the establishment of decreasing returns in the search process for innovations. p. 1138
Looking to model the management of this process across all producers within all geographical regions would seem to be a difficult task. However, Professor Dosi notes that there are other serious concerns that need to be taken into consideration.
The appearance of new paradigms is unevenly distributed across sectors and so are (a) the degrees of technical difficulties in advancing production efficiency and product performance, and (b) the technological competence to innovate, embodied in people and firms. pp. 1138 - 1139
Simply not everyone will be working off the same page when it comes to the types of innovation, the scale of their application and degree of complexity. In this next quotation it becomes clear that the process under management by the software is the means in which to be able to deal with these underlying paradigms and trajectories. Therefore, in order for the producers to begin the path of innovativeness requires that we resolve these process design issues, and build the software before they are implementable.
These distributions of opportunities and competence, in turn are not random, but depend on (a) the nature of the sectoral production activities, (b) their technological distance from the “revolutionary core” where new paradigms are originated, and (c) the knowledge base that underpins innovation in any one sector. p. 1139
People, Ideas & Objects believes that if we engineer a software application to deal with these issues, we can accelerate the performance of the producer and the industry. From a systems engineering point of view this has been beyond the scope of one software development team working with one producer. For any producer to undertake the required analysis, let alone development of the systems, is beyond the scope of what was possible or desirable. It is well beyond the scope of any software developer to undertake on their own, in a speculative manner, and therefore has been beyond the imaginations and possibilities of the industry. I would also argue that, in the past, automation of this business process would have generated limited value. Today we can define a more specific division of labor and specialization and therefore, provide a more profitable means of oil and gas operation.

To state this point differently, we can focus the resources of the industry on the comprehensive engineering of these processes. Allocating these costs over the entire energy producing base presents opportunities to undertake the detailed development of software that has not been attempted before. This is the approach that is necessary to deal with the issues associated with the producers meeting the market demands for energy. Management of these processes is the key to enabling the organizational performance, technological paradigms and trajectories that Professor Dosi notes in this paper.

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

Wednesday, September 29, 2010

Professor Giovanni Dosi, Part VIII

I think it would be easy to attain a consensus that the underlying earth science and engineering, which is the basis of the competitive advantage of the oil and gas producer, is on a steep upward trajectory. The past few years has demanded more engineering and earth science per barrel of oil, and the complexity or difficulty of those inputs are on their own separate but related trajectory. The science of oil and gas will be the means in which producers are able to attain the market demand for energy. In this post Professor Dosi shows how these trajectories are affected by technological paradigms.

Technological paradigms have been directly linked with major scientific breakthroughs, form the discovery of the transistor to the development of modern computer technologies. Professor Dosi states that these links between science and technology have been evident since the days of Leonardo da Vinci and Galileo. What was unique to the 20th century was that the need to generate and utilize scientific knowledge, was internal to, and often a necessary condition of the development of new technology paradigms. Up until the end of the 19th century, most technological innovations were the development of imaginative craftsmen. Many of the 20th century development were the results of multiple disciplines, such as physics and microelectronics, whose scientists were awarded the Nobel Prize in 1962 for the semi-conductor.

Professor Dosi concludes that scientific input into the innovation process is evidence of the importance of factors exogenous to competitive forces among private economically motivated actors. This is subject to two important qualifications.

  • Science and Technology are self-fulfilling in their developments.
  • Scientific advances play a major direct role, especially at an early phase of development of new technological paradigms. p. 1136

These points support Dosi’s (1988) assertion that “general scientific knowledge yields a widening pool of potential technological paradigms,” where the greatest value is attained in the earlier stages. Professor Dosi analyzes the specific mechanisms through which a few of these potential paradigms are actually developed economically, subsequently applied, and that often have become dominant in their industry. The process of selection depends on the following factors.

  • The nature and interests of the bridging institutions between pure research and economic applications. (p. 1136)
  • Institutional factors that drive the technology or science, such as (the military) (p. 1137)
  • The selection criteria of markets and or techno-economic requirements of early users. (p. 1137) (NASA, Pentagon the FDA and Nuclear Reactors for the Navy.)
  • Trial and error associated with the Schumpterian entrepreneurship. 

Professor Dosi (1988) continues on to assert that much of the innovativeness of a firm is dependent on technology more than science, and is based on several implications. The first implication being the net benefactor of the cumulativeness, tacitness and technological knowledge implies that “innovation and the capabilities for pursuing them are to an extent local and firm specific.” Secondly, the “opportunity for technological advances in any one economic activity can also be expected to, and constrained by, the characteristics of each technological paradigm and its degree of maturity”. This is further defined by the technological and scientific capabilities, and “the advances made by suppliers and customers.” (p. 1137)

Recently we learned of the difficulty for a firm to copy another firms ideas or capability provides little to no value. On the contrary the effort to copy the capabilities is as potentially difficult as building their own unique capabilities. Today we learn that innovation is dependent on the technology that supports the firm. That is the technology both enables and / or constrains the capabilities of the producer.

Professor Dosi notes “New technology paradigms reshape the patterns of opportunities of technical progress in terms of both the scope of potential innovations and ease with which they are achieved.” p. 1138. The technology that a producer has includes the ERP systems used within the organization.  When the business is a science, as it is in oil and gas, it would be in the producers interest to remain open and flexible in both its scientific and business approach. This is the strategic position that a producer would be capable of maintaining with People, Ideas & Objects software applications, based on the Draft Specification.

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

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Tuesday, September 28, 2010

Professor Giovanni Dosi, Part VII

We move back to our review of the Preliminary Research report and pick up with Professor Giovanni Dosi’s 1988 paper “Sources, Procedures, and Microeconomic Effects of Innovation.” Last Monday we discussed the difficulty and complexity in identifying and supporting innovation within an oil and gas firm. How both the science and business aspects of the firm need to be addressed. Today we discuss application of our factor of revenue per employee in identifying the level of innovativeness within the firm and / or Joint Operating Committee, and comparing it within a cluster of producers in which a firm competes. A cluster being the larger grouping of producers that are oriented to a single geographical region. People, Ideas & Objects believes that competitiveness between and within clusters will become more of a focus of producer firms. It should also be questioned that in the search for oil and gas, how much of the scientific capability of a producer is dependent on a standard or historical basis of competitive understanding and capability, and how much is based on a future understanding of cooperation within a cluster and / or competition against unknown and unseen global participants? Dosi notes.

In general, each organizational arrangement of a firm embodies procedures for resource allocation to particular activities (in our case, innovative activities), and for the efficient use of these resources in the search for new products, new processes, and procedures for improvements in existing routines; however, the specific nature of these procedures differs across firms and sectors. For example, the typical degrees of commitment of resources vary by industry and so do the rates at which learning occurs. I now turn to the interpretation of these phenomena. p. 1135
Professor Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovate inputs.

Using the factor of revenue per employee helps to define and clarify the value in assessing “the observed inter-sectoral differences” of an oil and gas company in investment outcome. The producer firm would then have the “different incentive structures” and “different opportunities” as the tools in which to increase their revenue per employee. This also reflects that “different incentive structures” and “different opportunities” are the product of the organizational structure that the producer firm employs.

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

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Monday, September 20, 2010

Professor Giovanni Dosi, Part VI

People, Ideas & Objects focus is on providing ERP systems based on using the Joint Operating Committee as the key organizational construct of the innovative producer. The reason for doing this is to support the innovative oil and gas producers in the difficult processes of identifying and supporting innovation. In this first quotation, I find Professor Dosi has captured the difficulty the producer faces in the scientific and business processes of the firm.

In general the uncertainty associated with innovative activities is much stronger than that with which familiar economic model deals. It involves not only lack of knowledge of the precise cost and outcomes of different alternatives, but often also lack of knowledge of what the alternatives are (see Freeman 1982; Nelson 1981a; Nelson and Winter 1982). 
In fact, let us distinguish between (a) the notion of uncertainty familiar to economic analysis defined in terms of imperfect information about the occurrence of a known list of events and (b) what we could call strong uncertainty whereby the list of possible events is unknown and one does not know either the consequences of particular actions for any given event (more on this in Dosi and Egidi 1987). 
I suggest that, in general, innovative search is characterized by strong uncertainty. This applies, in primis to those phases of technical change that could be called pre-paradigmatic: During these highly exploratory periods one faces a double uncertainty regarding both the practical outcomes of the innovative search and also the scientific and technological principles and the problem-solving procedures on which technological advances could be based. When a technological paradigm is established, it brings with it a reduction of uncertainty, in the sense that it focuses the directions of search and forms the grounds for formatting technological and market expectations more surely. (In this respect, technological trajectories are not only the ex post description of the patterns of technical change, but also, as mentioned, the basis of heuristics asking “where do we go from here?”) p. 1134
Lets be clear, the uncertainty resides in both the scientific and business realms. I am not of the opinion that the two can be separated, as is done in other systems such as SAP. This is maybe why the industry has been poorly served, in my opinion, by the business systems that operate today. They don’t recognize the innovative and science basis of the business.
However, even in the case of “normal” technical search (as opposed to the “extraordinary” exploration associated with the quest for new paradigms) strong uncertainty is present. Even when the fundamental knowledge base  and the expected directions of advance are fairly well known, it is still often the case that one must first engage in exploratory research, development, and design before knowing what the outcome will be (what the properties of a new chemical compound will be, what an effective design will look like, etc.) and what some manageable results will cost, or, indeed, whether very useful results will emerge. p. 1135
Add to this situation the complexity of interactions of the producers that are represented in the JOC and we begin to see the difficulty expressed by Professor Dosi. Having misaligned frameworks where the bureaucracy is attuned to only compliance and governance of the firm. Is the easy way to deal with the complexity and difficulty in this business. In other words just ignore it. This is how you have CFO’s stand up at the annual meeting and state that, on a budget basis, the firm will produce an additional 10% next calendar year. Dosi notes;
As a result, firms tend to work with relatively general and event-independent routines (with rules of the kind “... spend x% of sales on R & D,” ... distribute your research activity between basic research, risky projects, incremental innovations according to some routine shares ...” and sometimes meta-rules of the kind “with high interest rates or low profits cut basic research,” etc.). This finding is corroborated by ample managerial evidence and also by recent more rigorous econometric tests; see Griliches and Ariel Pakes (1986) who find that “the pattern of R & D investment within a firm is essentially a random walk with a relatively low error variance” (pp. 10 - 11). In this sense, Schumpeter’s hypothesis about the routinization of innovation (Joseph Schumpeter 1942) and the persistence of innovation-related uncertainty must not be in conflict but may well complement each other. As suggested by the “late” Schumpeter, one may conjecture that large-scale corporate research has become the prevailing form of organization of innovation because it is most effective in exploiting and internalizing the tacit and cumulative feature of technological knowledge (Mowery 1980; Pavitt 1986). Moreover, companies tend to adopt steady policies (rules), because they face complex and unpredictable environments where they cannot forecast future states of the world, or even “map” notional events into actions, and outcomes (Dosi and Orsenigo 1986; Heiner 1983, 1988). Internalized corporate search exploits the cumulativeness and complexity of technological knowledge. Together with steady rules, firms try to reduce the uncertainty of innovative search, without however, eliminating it. pp. 1134 - 1135
Such was the state of business in 1988 for Professor Dosi. I would argue that the luxury of time in 2010 doesn't exist. Given all the time and all the resources we are able to achieve great things. Dealing with the real world constraints of the science of oil and gas in this business has to be purposely addressed. That is the business of People, Ideas & Objects in developing the systems defined in the Draft Specification.
Internalization and routinization in the face of the uncertainty and complexity of the innovative process also point to the importance of particular organizational arrangements for the success or failure of individual innovative attempts. This is what was found by the SAPPHO Project (cf. Science Policy Research Unit 1972 and Rothwell et al. 1974), possibly the most extensive investigation of the sources of commercial success or failure of innovation: Institutional traits, both internal to the firm - such as the nature of the organizational arrangements between technical and commercial people, or the hierarchical authority within the innovating firm - and between a firm and its external environment - such as good communication channels with users, universities, and so on - turn out to be very important. Moreover, it has been argued (Pavitt 1986; Robert Wilson, Peter Ashton and Thomas Egan 1984) that, for given incentives and innovative opportunities, the various forms of internal corporate organization (U form versus M form centralized versus decentralized, etc.) affect innovation and commercial success positively or negatively, according to the particular nature of each technological paradigm and its stage of development. p. 1135
For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Thursday, September 16, 2010

Professor Giovanni Dosi, Part V

Today’s post leads ultimately to the difficulty for the producer in defining where the boundary of the firm and markets begin and end. Much research has been conducted in this area, and the Draft Specification draws a definitive line between the firm and the marketplace. There the marketplace is represented in the Joint Operating Committee. The primary reason for this definition of the boundary of the firm and marketplace is the proprietary earth science and engineering capability and information that the producer firm holds.

The question therefore becomes how is this proprietary information and capability deployed on an as needed basis. Professor Dosi notes that although the free movement of information has occurred in industries for many years, yet has never been easily transferable to other companies within those industries. The ability to replicate a competitive advantage from one company to another is not as easy, and may indeed be not worthwhile doing. 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 companies own unique and specific competitive sources and directions.

This also imputes that the free flow of information between producers through collaborations in the Joint Operating Committee would increase the knowledge, yet not expose anyone of the specific organizations to any specific losses of key knowledge, proprietary information or capability.

Information’s shelf life expires faster each day. Knowledge and information need to be employed and deployed where and when they are required. This research’s collaborative method of employing the intellectual property might facilitate a greater value, to the participating producer, and would provide the groundwork for future innovations and expansion of the underlying engineering and earth sciences. And although no specific proof of this can be sourced at this time, today’s hierarchical organizational structure is the impediment to the speed of innovation developments, its adoption and application, and it is asserted through this Preliminary Research report that this is tacitly understood.

Professor Dosi (1988) cites the dichotomy of Adam Smith in that organizations are comprised of those that “system learning effects on economic efficiency by way of the division of labor,” and “the degrading brutality which repetitive and mindless tasks could imply for some groups of workers”. These support the “how to do things” (the JOC) and “how to improve them” (the producer firm).

This dichotomy reflects the challenge of improving the processes and products through trial and error, with heavy emphasis on the error. The ability to accurately predict the success or failure of a new idea contains inherent high risks and hence high rewards. This is one of the constraining factors in implementing innovative thinking, in that no one wants to be proven wrong. Whereas, even if the idea fails the ability to test the theory, the failure may ultimately lead to and may be the key to discovery. Professor Dosi states;

Organizational routines and higher level procedures to alter them in response to environmental changes and / or to failures in performance embody a continuous tension between efforts to improve the capabilities of doing existing things, monitor existing contracts, allocate given resources, on the one hand, and the development of capabilities for doing new things or old things in new ways. This tension is complicated by the intrinsically uncertain nature of innovative activities, notwithstanding their increasing institutionalization within business firms. p. 1133
For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Wednesday, September 15, 2010

Professor Giovanni Dosi, Part IV

In yesterday’s post we noted that the comparison of revenue per employee over multiple periods would impute a trajectory of the firm or Joint Operating Committee’s innovativeness. Recall Professor Dosi notes that innovation is developed through the interactions between the “capabilities and stimuli” and “broader causes external to the individual industries such as the state of science”. In today’s post we take the concept of this trajectory, define it, and apply it to oil and gas.

The definition of a technological trajectory is the activity of technological process along the economic and technological trade offs defined by a paradigm. Dosi (1988) states “Trade-offs being defined as the compromise, and the technical capabilities that define horsepower, gross takeoff weight, cruise speed, wing load and cruise range in civilian and military aircraft.” People, Ideas & Objects assumes the technical trade-off in oil and gas is accurately reflected in the commodity pricing. Higher commodity prices finance enhanced innovation.

These trade-offs facilitate the ability for industries to innovate on the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs the change and is usually abundant and available at low costs. For innovation to occur in oil and gas, People, Ideas & Objects would assert that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of technical paradigms which will provide companies with fundamental innovations.

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

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Tuesday, September 14, 2010

Professor Giovanni Dosi, Part III

In our previous post we introduced revenue per employee as a factor of determining the innovativeness of a producer firm or Joint Operating Committee. Asking if the calculation would provide a reasonable comparison of the innovativeness that exists. However, would this calculation reflect the quality of assets, the size of the firm or its actual innovativeness? That is the question that is being answered in this post.

Clearly the revenue per employee would reflect many factors other then the innovativeness of the firm or JOC. However, would the comparison of revenue per employee over multiple periods be a determining factor of innovativess? I think it would. That the increase / decrease in the factor would be as a result of an increase or decrease in price and volume, with the volume being particularly affected by the changes and innovations that occurred over the period in the firm or JOC.

Much analysis has been undertaken to determine the actual outputs from innovation and compare those to the input costs and attempt, as one does in today’s technology environment, to determine a return on investment on technology, innovation and research and development.

Professor Dosi reviews a number of studies that focus on quantifying the output part of the equation. These are comprehensive in the number, heterogeneous in the conclusions, yet, Dosi feels he has been able to find a number of threads that determine which factors or characteristics are influential and of crucial importance in the economics of technological change.

Professor Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or “tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? Clearly some companies are more effective at this process then others, but this research in oil and gas asks, is there a means for an organization to provide a quantum increase in its ability to innovate that leads to higher trajectories of performance based on production revenue per employee?

If the knowledge of the underlying oil and gas sciences increases in its understanding, what organization structure can best facilitate innovation? Would “any” organizational structure have a requirement to parallel the changes and developments in the sciences? How are the scientific problems, the refinement of models, the discovery and success of innovative thinking communicated throughout a bureaucracy? Self-organizing teams, as represented by the JOC, provide the most effective and efficient means of organizational structure.

It is this enhanced innovativeness that using the JOC as the key organizational construct provides. Matching the faster pace of change in the underlying sciences and mapping the necessary changes within the organization will be a means of increased performance within the producer / JOC. Providing the foundation for the producer to build their competitive advantages and scientific and engineering capabilities.

In addition to providing a strong competitive advantage to the producer firms, use of People, Ideas & Objects software applications would also provide the most profitable means of oil and gas operations. Recall this is the competitive advantage of this software development project and the Community of Independent Service Providers. We provide this second value added process to the innovative producer by ensuring that the most effective division of labor and specialization, defined and supported by the software, are used in the day to day operations of the oil and gas producer.

Therefore when we consider the calculation of revenue per employee, we see these two forces in play. The first being the producer / JOC moving with the changes in their earth science and engineering capabilities. And secondly, with the most profitable means of oil and gas operations based on using the People, Ideas & Objects software applications enhanced division of labor and specialization, and our Community of Independent Service Providers.

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

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Monday, September 13, 2010

Professor Giovanni Dosi, Part II

In this the second part of our review of the Preliminary Research reports summary of innovation. We note Professor Dosi’s key factors of innovation, and its application to oil and gas. One of the breakthroughs that was determined in the Preliminary Research report was the use of revenue per employee as a means of determining what the producer firm and / or Joint Operating Committee could use as a determination of its level of innovativeness.

In determining the key factors of innovation Professor Dosi notes:

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

  • Capabilities and stimuli generated with each firm and within the industry of which they complete.

and

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

Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)
Based on the capabilities and stimuli of innovation present in the oil and gas sector, particularly the microeconomic effect of the commodity prices, it is reasonable to conclude that oil and gas would be an area where significant innovation can and needs to occur. The primary reasons for the future enhanced innovation is due to the following analysis of the industry.

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

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

To attain concurrence on these factors of innovation would be easy. What is needed in oil and gas is a measure of innovativeness that could be applied to the oil and gas producer or to a specific JOC. As was mentioned in the opening paragraph of this post, the Preliminary Research determined that an appropriate measure of innovativeness is the revenue per employee of a producer firm or JOC. Differences in performance are imputed to be the overall net result of the investments, both organizational and science based capabilities, and innovativeness of the firms. To make an effective change in the revenue per employee requires a substantial effort to increase the output of the firm or JOC. We will contiue to use and elaborate on this factor throughout our remaining review.

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

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Friday, September 10, 2010

Professor Giovanni Dosi, Part I

We now begin a review of Professor Giovanni Dosi’s 1988 paper “Source, Procedures, and Microeconomic Effects of Innovation.” This was the key paper that was reviewed in the Preliminary Research report. As a result of the publication of this paper, Professor Dosi has gone on to become one of the premier authorities on business innovation.

Professor Dosi’s article discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. The key aspects of Professor Dosi’s theories that make them directly applicable to oil and gas are the innovation theories application to earth science and engineering disciplines. These disciplines are key to the capability and success of oil and gas firms search, and production of, hydrocarbons. The investment in science and technologies is with the implicit expectation of a return on these investments, but also, to provide the firm with additional structural competitive advantages by moving their products costs and / or capabilities beyond that of the competition. Professor Dosi note:

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.
We have asserted in People, Ideas & Objects that higher commodity prices are a re-allocation of the financial resources towards the innovative producer. This is reflective of the changes from the easy energy era, to one that will be dominated by the earth science and engineering capabilities of the innovative producer. What is necessary is for producers to build People, Ideas & Objects Draft Specification which will enable them to align their resources towards innovation. That alignment being the movement of the compliance and governance frameworks of the hierarchy to the legal, financial, operational decision making, cultural and communication framework of the Joint Operating Committee (JOC).

One of the difficulties in reviewing this paper is the comprehensive nature of its content. I recall how difficult it was to review during the Preliminary Research report, and it appears to have only maintained its degree of difficulty. The content of the paper is accurately reflected in this following quotation.
The discussion will aim to identify (a) the main characteristics of the innovative process, (b) the factors that are conducive to or hinder the development of new processes of production and new products, and (c) the processes that determine the selection of particular innovations and their effects on industrial structures. 
Recall two of our four research questions are to determine if the processes of innovation are able to be reduced to a quantifiable and replicable process, and, does the JOC facilitate the means to innovate. It would appear to me that the selection of this paper to review these research questions. Was the reason we are / were able to answer these difficult questions. Professor Dosi notes:
There are two major sets of issues here: first, the characterization, in general, of the innovative process, and, second, the interpretation of the factors that account for observed differences in the modes of innovative search and in the rates of innovation between different sectors and firms and over time. 
For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Thursday, September 09, 2010

What is Structuration?

The Preliminary Research Report reviewed a variety of papers that fall under the topic of Structuration. What is this and why is it important to People, Ideas & Objects and the innovative oil and gas producer. Here are excerpts from the review and how they affect this project.

Professor Anthony Giddens initially published “The Constitution of Society: Outline of the Theory of Structure”, Berkeley, University of California Press and his theory is well articulated through the following excerpt from “Using the Structurational Model of Technology to Analyze an ERP Implementation” by Olga Volkoff, of the Richard Ivey School of Business.

From the perspective of structuration theory, adaptation is the joint effect of the actions of individuals and the institutional structures within which those actions take place. Structures such as business strategies, organizational culture, reward and control systems, patterns of communication, and professional norms both enable and constrain the daily activities of people, but do not wholly determine them. At the same time, while individuals can choose to act in ways that will either reinforce or alter those structures, their choices are not independent of the structures within which they take action. This “duality of structure” - the recursive (re)production of institutional structures through the ongoing daily social practices of individuals - allows change to emerge in ways that are not wholly predictable. 
I think within this quotation we see the reasoning why the oil and gas producers have such difficulty in meeting the demands of innovation. The Joint Operating Committee holds the “actions of individuals, and the institutional structures” that are not recognized by the ERP systems that are available in the marketplace. Therefore you have two disparate organizations, the JOC and the bureaucracy, operating in two different structures, creating conflict and contradicting one another.

Giddens’ theory of structuration is further define by Professor Wanda Orlikowski’s 1992 comments: “the duality of structure refers to the structure of social systems: human actions create a social systems institutional properties and these properties then serve to shape future human actions.” The notion of structuration has three aspects.

  • It refers to a social process that involves the reciprocal interaction of humans with the structural features of an organization. 
  • Human actions are enabled and constrained by structures, yet these same structures are the result of previous actions.
  • Structural properties mediate human action and, at the same time, are reaffirmed through human use. In other words, institutional properties are both the medium and the outcome of interaction.

The Preliminary Research report looked at structuration from the perspective of how the current oil and gas organizational structure is defined through the social, legal and environmental influences that provide that structure, and of how the organization in turn provides structure to the social and human elements. People, Ideas & Objects are focused on building ERP systems that identify and support these organizations.

The JOC has explicit legal, ownership, financial and procedural authority and control of the field operations as the standard of operations and conduct in oil and gas, on an international basis. Financial investment in an oil and gas property qualifies for participation on the committee where the operational control is agreed to and implemented. This research asserted that this operational control has significant implications on the internal operations of the participating organization. The facility design, capital budget, legal agreements and the decision making processes are constrained, Giddens’ theory would suggest, by a variety of forms and structures that comprise the basis of operations for the entire industry.

As Thomas Davenport noted in his paper “The Strategy and Structure of Firms in the Attention Economy” 2002,
Strategy and structure are mental constructs, important not in themselves, but for their impact on the people in the organization. Strategy and structure are also the vehicles for focusing attention. 
Clearly stating that by moving the compliance and governance frameworks of the bureaucracy to be in alignment with the legal, financial, operational decision making, cultural and communication frameworks of the JOC. This realignment will eliminate the conflict and contradictions that occur between the two organizational constructs. This realignment will also increase the attention and focus of the individuals involved within the producer firm and the JOC, and by moving compliance to be in alignment with the operational decision making authority, accountability is enhanced. Lastly, as we will document as this review progresses, innovation is enabled.

Another key component of Giddens theory is that there is an inherent risk of failure if the progress of one element is out of step with the other two. Society, organizations and people need to move in lock step to avoid failure. This has been explicitly interpreted for the purpose of this research that the progress of society and people is either inhibited or facilitated through the actions that form the organizations. Currently individuals and society are dictating larger volumes of energy be sourced and provided by the market. If the bureaucracies that exist today, are unable to meet these demands then we will most certainly see failure.

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

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Tuesday, September 07, 2010

McKinsey, When Failure is not an Option

McKinsey Consulting are publishing a three part series on what they describe as the Joint Venture (JV). Entitled “When Failure is not an Option: Making Joint Ventures work for capital projects.” The article notes the role of JV’s in oil and gas and other industries, JV’s are of course one in the same as the Joint Operating Committee (JOC), the key organizational construct of People, Ideas & Objects Draft Specification.

This paper provides further support for the development of the Preliminary Specification and the research that has been conducted by People, Ideas & Objects. It is satisfying that the worlds number one consulting firm are publishing these types of articles. Prospective users and  members of the Community of Independent Service Providers need to see this type of support to ensure their efforts are put towards providing success for the innovative oil and gas producer.

Joint Operating Committees are initiated for a variety of reasons, to reduce capital risk, to include other producers throughout the aerial extent of the property, or to include needed resources and capabilities. Industry has established a culture around using the Joint Operating Committee that is reflected in many of the processes that are used. This culture has developed as a result of the Joint Ventures that are systemic throughout the industry. Whether it’s through agreement, the Operating or Accounting Procedure, partnerships are what the Joint Operating Committee was designed to reflect. McKinsey states;

Historically, project developers have relied on the operating versus non-operating partner construct. However, companies are also increasingly leveraging JV constructs as a way to bring broader expertise into the project, build local talent and industries and retain sovereign ownership. In the oil and gas industry for example, a major project is likely to include a “supermajor” international oil company (for whom this project is part of a very large portfolio), an independent (who may be betting the company on this project), a passive investor (with a purely financial focus), and a national oil company (owned by the government where the project takes place). 
The Draft Specification has specific attributes that resonate with this perspective. First there is the enhanced participation enabled by the Partnership Accounting module. This module deals with the various ways in which partners may contribute to the Joint Operating Committee. Noting in the quotations example the passive investor, national oil company and international oil company each have differing costs and contributions. Permitting each of the firms to contribute fully, in their own unique way, to the successful development of the project. Secondly, the participants that are noted in the McKinsey quote, independents, start ups, international and national oil companies, are the targeted market for the People, Ideas & Objects software applications. Having each of the partners within a JOC with the same software development capability is a necessity, and the key deliverable of People, Ideas & Objects.

Noting the need for change, McKinsey details what is required for these organizations to deal with the enhanced participation enabled by the Partnership Accounting and other modules of the Draft Specification.
On top of the massive scale and obvious technical complexity, these new, multi-operator constructs
  • increasingly embody multi-cultural perspectives (both corporate and sovereign),
  • frequently represent divergent strategic priorities for the individual owners,
  • generally struggle with the governance and performance management challenges associated with any multi-parent structure and
  • often lack a single point of accountability for key decisions.

Addressing each of these points has been the topic of discussion in our Review. Having differing types of participants and cultural influences within the Joint Operating Committee is becoming commonplace. We had determined that each participant could pursue their own unique strategy within the property. We developed the Military Command & Control Metaphor to deal with the governance and performance management challenges. And lastly addressed the accountability for the decisions that are made within the JOC and the producer firm. Most importantly, the Draft and Preliminary Specifications are developed to address and resolve these very issues.
Next, consider that the “new generation” of project JV has multiple layers, as both the owners and contractor teams rely on individual partnerships to deliver the project. As this phenomenon evolves, it should be no surprise that we see an explosion of risk and management complexity, given the sheer number of stakeholders involved and the more sophisticated tools and processes needed to deal with project intricacies.
In the Resource Marketplace module of the Draft Specification we have included the service industry as critical elements of the success of the innovative producer. McKinsey are right to suggest the level of risk and complexity will increase further as a result of having the need to develop the support industries. Innovation at the producer level needs the service industries to be intimately involved in developing the products and services the producer demands.
Studies show that about 50 percent of all JVs do not succeed. Moreover, studies of large capital projects indicate that cost overruns from 50 to over 100 percent are common. So, when we consider this double-barreled risk of often-unsuccessful JVs managing often- unsuccessful mega-projects, we recognize that the difficulty project JVs have in aligning and operating effectively is a major reason why large capital projects often fail. Given the strategic importance these projects represent to participating partners, it is clear that JV organizations must be effective if a project is to meet expectations for predictability and performance.
There we have it, the world’s number one consulting firm clearly stating that joint ventures fail due to the difficulty in aligning and operating effectively. People, Ideas & Objects, its prospective users, the Community of Independent Service Providers through the Draft Specification are moving the compliance and governance frameworks of the hierarchy into alignment with the cultural, legal, financial, operational decision making and communication frameworks of the Joint Operating Committee. Laying the groundwork for the producers involved in the JOC to be successful. McKinsey quote a Harvard Business Review article that reflects these elements are necessary at the commencement of the JOC.
In their seminal article in the Harvard Business Review, Banford, Ernst and Fubini suggest four areas on which to concentrate the early planning and launch of any JV:
  1. Strategic alignment. This ensures that each partner’s disparate goals, priorities and business models are recognized and reconciled.
  2. A “loose-tight” governance model. This ensures that each partner’s needs for accountability and control are met, while at the same time, the project’s need for independence and authority is also respected.
  3. The economic interdependencies between the project JV and each partner. They will impact the extent and means by which human, technical, and other resources are invested in the project.
  4. Building the project organization. The parent organization should contribute their best people to the considerable challenges a major project presents, overcoming the frequent perception that such assignments are not always the best path to promotion.

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