Tailor's to the Emperor

I have not been kind to the Emperor's (the oil and gas companies) in this high energy price era. I more or less follow the money in situations like these. And with the energy companies receiving 100% of the revenues from oil and gas, they are the ones that should have done something about it. With the industry leadership meeting in Spain last week, unaware of how this problem came about, I am reluctant to give them any slack at this point. However, in this entry I will provide the energy companies with a temporary benefit of the doubt, and focus on the SAP and Oracle applications, and more broadly the technology community.

To call these Information Technology companies the designers and tailors of the Emperors new clothes makes for the perfect analogy. Particularly SAP and Oracle who command such fees and mind share in the oil and gas market. These firms are complicit in providing systems that are woefully inadequate for the innovative oil and gas producer.

Being the "big" suppliers of systems to oil and gas does not provide their firms with an excuse to sell systems that are inadequate and inappropriate for the market. No one was ever was fired for recommending these big applications, does not give SAP and Oracle a license to sell something that doesn't fit. It is my opinion that you should at least try to understand the market you are selling to.

If the producers where provided with systems that supported the Joint Operating Committee and innovation in general, would the firms have been able to explore and maintain production for the markets demands? Instead they have provided systems that identify, support and entrench the bureaucracy.

There has been a technological revolution in the past 5 years. Has any of these new technologies been integrated into the oil and gas firms? Not that I am aware. It's Stampede week here in Calgary and I can assure you that the marketing arm of these "suppliers" have a good understanding of where their next meal is coming from. Role in another server or two and database licenses for all.

Witnessing this festival of greed during Stampede makes me think I am the only one out of step. Don't solve problems, just sell.

Technorati Tags: People's, Call-to-Action, Failure, Tradition, Trends,

Professor Carlota Perez on Cisco Thought Leadership.

The title of this entry will take you to Cisco's "Thought Leadership" page. There you will find a variety of information and podcasts from a number of speakers. Specifically I wanted to point out Professor Carlotta Perez has a podcast about her long wave economic theories. Professor Perez is able to lay out where we are in the "transition" from "installation" to the current "deployment" periods. Providing the listener with some insight as to how the Information and Communication Technologies will affect them in the very near future.

Professor Perez did an interview (approximately 2005) with Strategy and Business entitled "Carlota Perez: The Thought Leader Interview" available here. (Subscription required). There she is able to draw on the "5 great surges" and apply this history to our current situation. Surprisingly, much of what is occurring in 2007 fits the previous surges progress and profile. A few key excerpts from the document show the strength of her analysis.

• When a new set of technologies is ready to emerge into widespread use, it needs the force of freewheeling investment capital to give it momentum. This period which Professor Perez calls Installation, might take 20 to 30 years to develop; then, there is another 20 to 30 year period called Deployment, when the potential of those technologies for improving quality of life comes to fruition.
  
• According to Perez, the industrialized world is still in the middle of its painful transition from Installation to Deployment.
  
• We may have a jolt or two in the near future, and then a great boom probably lies ahead. But the NASDAQ collapse of 2000 was not big enough to force the changes necessary to get there.
  
• The collapse has to be disastrous enough to make it clear to everyone that the time when the stock market drives the growth of the economy is finished.
  
• You and I both have seen the changes wrought by information technology, and we think it is uniquely momentous. Yet previous technological revolutions made equally momentous changes.
  
• Our present, fifth, surge, the age of information technology and telecommunications, began in 1971 with Intel's microprocessor. If the historical pattern holds, this surge still has 20 to 30 years left to realize its potential.
  
• S+B: And organizations are different as well?
• Perez: Yes, each surge brings with it a new organizational paradigm, new best practices, a new common sense.
• S+B: What happens next?
• Perez: Well, in an ideal world, we would smoothly enter a golden age of expansion and growth in the global economy - a time when the amazing, wealth-creating information technology paradigm lifts all boats and produces global welfare. Instead, as in every previous surge, there is a difficult interim period: a time of uncertainty, instability and economic recessions or even depression. In my book, I called this interim period the turning point.
  
• S+B: How does that come about?
• First, every time some forward-looking CEO tries to implement a three year plan, he is ousted in three quarters.
  
• Second, prices have to come into line. During Installation, there is always strong asset inflation (both in equity and in real estate) while incomes and consumption products do not keep pace. This creates a growing imbalance in which the asset-rich get richer and the asset poor get poorer. When salaries can by houses again, we will be closer to the golden age.
  
• Third, as Deployment gets closer, you will see increasingly stable industry structures. Look at the mad price wars of the airline industry; it has a lot of restructuring to do to segment its markets and develop a sustainable set of practices.
  
• Fourth, there need to be innumerable investments and business innovations to complete the fabric of the new economy. Here's one example: Millions of self-employed entrepreneurs work from home with uneven sources of income.
• Finally, I'm not sure we've understood the causes of fraudulence at companies like Enron, nor how to avoid them by means other than excessive bureaucratic controls. The key decision makers, in government and business, do not seem ready to make the changes that could get a golden age under way.
  
• S+B: Then why not simply wait for it to emerge?
• Perez: Because left to itself, it might not happen. Historically regularities are not a blueprint: they only indicate likelihood. We are at the crossroads right now. It is our responsibility to make sure that the enormous growth potential of the next golden age will not be lost.

Reviewing the podcast and reading the document are highly recommended. Professor Perez also has a book entitled "Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages." ISBN:1843763311. I would reassert the time and place to be conducting these types of software developments is now.

Technorati Tags: Genesys, Perez, Change, Research, Trends

Transition of the generations.

Sun Microsystems have posted on their Sun Executive Boardroom, information that details issues around the Boombers commencing their retirement in five years. As always, click on the title for the article. This is a very interesting article and one that certainly applies to the energy industry. Essentially what it appears to me is a small window of opportunity for the four generations, the Boombers, Gen X, Gen Y and Millennial's to resolve how the industries that are currently managed by the Boombers will get handed over. There are needless to say many problems ahead. That I would point to technology to help is probably the smallest surprise in this entry.

Wow, only one paragraph, didn't think I could do it!

Technorati Tags: Genesys, Organization, Trends, Change

Eric Schmidt, Google CEO

There is an interesting and worthwhile video on YouTube of Google's CEO at the Web 2.0 conference. Within this video Dr. Schmidt says something very interesting that applies to the work being done around this blog.

"Collaboration is the 'killer app' for how communities work."

In economics one learns fairly early on that transportation, communications and financial resources are key ingredients of economic growth. Collaboration is a key technology of communication. If the energy industry is going to be able to grow, enhanced communications will be necessary.

Technorati Tags: Genesys, Collaboration, Trends, Ideas

Collaborative Advantage

"The days of U.S. technological domination are over. The nation must learn to thrive through working with others."

Leonard Lynn
Hal Salzman

Blog Summary

I found this kicking around on my hard drive. I had apparently downloaded it from the Kauffman Foundation a while ago, a copy of this document can be secured by selecting the title of this entry. Collaboration is clearly a key attribute of how work will be done in the future. Collaboration facilitated by technologies that are available today provide competitive advantages, and different methods and means of completing work. This article suggests the American dominance in technology leadership is waning. How the U.S. can regain the leadership position they once enjoyed is suggested in this article is through collaboration. This document takes a critical look at the realities of globalization for the U.S. Based here in Canada, much of the same feelings of the need to compete is shared by most. We have lost some of our leading position, however, the U.S., and to a lesser degree Canada, were in need of a competitive challenge. Competition is good, and we are faced with some formidable competitors in a globalized world. This document focuses on collaboration in the sciences and technology, and specifically noting the role of engineers in providing the means for North America to compete.

It at times seems that the differences that made North Americans unique are fading quickly. Whether or not a reconciliation of the standard of living of all people is in force, most people would concur with this documents premise and hypothesis. The authors note;

"It is not that the new globalization has gone unnoticed. Many observers are concerned that the United States is beginning to fall into a vicious cycle of disinvestment in and weakening of its innovation systems. As U.S. firms move their engineering and R & D activities offshore, they may be dis-investing not just in their own facilities but also in colleges and regions of the country that now form critical innovation clusters. These forces may combine to dissolve the bonds that form the basis of U.S. innovation leadership." pp. 75

Were these challenges demand driven? Or, has the scientific and engineering capability to conduct most of the high end complex tasks what made North America so dominant? Or was it the freedom and liberty were being released in the former communist nations, that is now rising up to challenge the west? I think it is the latter, that with China in 1978 and the Former Soviet Union (FSR) since 1989, can now focus on quality of life issues and be less concerned with controlling their populations. The authors seem to think that some of the ways in which business had been conducted has been exploited by other countries. In an open society that is what will happen, and did happen to the benefit of all people. Although losing these competitive attributes is possible, the competitive focus they unleash is both the purpose of an open society and the key to its future.

"Strategies that may have served U.S. firms in the second generation globalization will not work in the third generation world. The new emerging economies are an order of magnitude larger than those that emerged a generation ago, and they are today's growth markets. Nor does the United States, despite its undeniable strengths, enjoy global dominance across the range of cutting-edge technologies. More-over, U.S. multinationals are weakening their national identities, becoming citizens of the countries in which they do business and providing no favors to their country of origin. This means that the goal advocated by some U.S. policy makers of having the United States regain its position of leadership in all key technologies is simply not feasible, nor is it clear how the United States would retain that advantage when its firms are only loosely tied to the country." pp. 77

These comments may appear to resonate more with a protectionist mindset then with a more globalized point of view. It also seems to state a wanting for a greater share of a smaller pie then sharing a large pie to a certain extent. If the third generation globalization ties into Professor Carlotta Perez's theories, the third generation is the point where the benefits are soon to arrive. Dr. Perez made that call just recently. So the installment period as she described has been made, and thankfully we had a large and growing China and India to help sustain the world through this transition. It is also necessary to point out that what fuels this activity is the oil, gas and coal industries. These resources are constrained due to the global demand, and are potentially a hindrance to the progress of the world economy. The only manner that the energy industry can meet this demand is to re-organize for this challenge. This reorganization has to be made explicit through the software that defines and supports the structure. We should be less concerned about the losses of competitiveness and focus more on how they can be solved collectively.

The authors offer some of the ways in which the past competitiveness of the U.S. market is slipping away. In these four categories I can clearly see that the authors are not offering a means to stop the hemorrhaging of the U.S. economy. But offering constructive ways in which the U.S. can participate in the global economy and compete.

The Bandwagon Syndrome.

"As U.S. multinationals join the bandwagon of offshore technology development, they often seem to go beyond what makes economic sense." pp. 77

The Snowball Effect.

"The more that U.S. multinationals move activities offshore, the more sense it makes to offshore more activities." pp. 77

The loss of Positive Externalities.

"Some multinationals are finding that if their technology is developed offshore, then it makes more sense to invest in offshore universities than in domestic universities." pp.78

The Rapid Rise of Competing Innovation Systems.

"Regional competence centers or innovation clusters in the United States grew haphazardly in response to local market stimuli. China, India and other countries are much more explicitly strategic in creating competence and innovations centers." pp. 78

"Rather, the United States needs to develop new strengths for the new generation of globalization. With U.S. and other multinational firms globalizing their innovation work, emerging economies developing their education systems and culling the most talented young people from their huge populations, and communication technologies enabling the free and fast flow of information, it is hard to imagine the United States being able to regain its former position as global technology hegemony." pp. 79

"No amount of science and engineering expansion will restore U.S. technology autarchy. Instead, a new approach - collaborative technology advantage - is needed to develop a vibrant S&T economy in the United States." pp. 80

Policies for strength,

"We believe that the government, universities, and other major players in the U.S. innovation system need to work toward three fundamental major goals:" pp. 80

• "The United States should develop national strategies that are less focused on competitive, or even comparative, advantage in the traditional meaning of these terms, and are more focused on collaborative advantage." pp. 80
  
• "To start, the nation needs to counter the bandwagon and snowball effects that are driving the out-sourcing of the technology in potentially harmful ways." pp. 80
• "Designers of Tax Policies at all levels also can redirect policies in these directions." pp. 81
  
• "To a large degree, the U.S. patent office serves as the patent office for the world." pp. 81
• "As a second goal, the United States need to help create a world based on the free flow of S & T brainpower rather that a futile attempt to monopolize the global S&T workforce." pp. 81
• "Immigration policies that support global circulation would allow easy short term entry of three to eight months for collaboration with U.S. based scientists and engineers." pp. 81
• "Finally, in working toward the first two foals, the United States needs to develop an S&T education system that teaches collaborative competencies rather than just technical knowledge and skills." pp. 81
• "Our finding suggest that it is not the technical education but the cross - boundary skills that are most needed (working across disciplinary, organization, cultural, and time / distance boundaries)." pp. 81

Finally as part of the conclusion of this paper, "the enhanced communications within and between organizations". In oil and gas the consistency of motivation between the members of a Joint Operating Committee (JOC) resonates with the recommendations of this paper. The science, technology and engineering is the focal point of those JOC members. It is their backgrounds and scientific interests. The JOC has the operational decision making capabilities, however, it must retard these processes for the various bureaucracies to sign off on the plan. Its time to stop placing the bureaucrats at the centre of the organization and adopt this papers recommendations. And it is my opinion that the start of this change would be to develop the software as part of the solution to our long term economic well being.

"Our research suggests that the new engineering requirements, like the old, should build on a strong foundation of science and mathematics. But now they go much further. Communication across disciplinary, organizational, and cultural boundaries is the hallmark of the new global engineer. Integrative technologies require collaboration among scientific disciplines, between science and engineering, and across the natural and social sciences. They also require collaboration across organizations as innovation emanates from small to large firms and from vendors to original equipment manufacturers. And obviously the require collaboration across cultures as global collaboration becomes the norm. These requirements mandate a new approach not only to education but to selecting future engineers:colleges need to recognize that the talent required for the new global engineer falls outside their traditional student profiles. Managers increasingly report that although they want technically competent engineers, the qualities most valued are these other attributes."

Technorati Tags: Genesys, Call-to-Action, Engineering, Science, Trends

Globalization at the turning point: A Perspective from the great surges model.

Professor Carlotta Perez has been one of the many Professors that I keep a close eye on. Her work is in the area of long wave economic theorists. Defining two distinctive periods of time marked by change. The installation period, and the deployment period. I found this abstract to a seminar that she is holding at Sussex University. Within this abstract, she calls the current time period as the "Turning Point between the two periods." A very important point in time.

Abstract:

Though Schumpeter himself emphasised the double agency of the entrepreneur and the financier in the innovation process, neo-Schumpeterians have generally neglected the role of finance in technological diffusion. The great surges model proposed by the author addresses these complementary roles and suggests that the propagation of technological revolutions has historically involved two distinct periods of two or three decades each: The Installation period, led by financial capital and characterized by radical innovations or creative destruction and the Deployment period, led by production capital and marked by processes of expansive growth that could be termed “creative construction”. After indicating the differences with Schumpeter’s long wave model, it will be argued that, at present, the diffusion of the ICT revolution is at the Turning Point between the two periods. The world economy would be in a phase of instability, imbalances and income polarisation, calling for institutional changes as profound as those of Bretton Woods and the Welfare State, which enabled the full flourishing of the previous technological revolution, that of mass production and its “Fordist” paradigm. On this occasion, due to the nature of the “Knowledge Society” and the flexible ICT paradigm, much institutional innovation would need to be at the global level. Thus, seen from the great surges model, globalisation would be at the crossroads choosing a path between two extremes in the current “space of the possible”: between creating the institutional conditions for a global “golden age” that would be a positive-sum game for all countries, developed and developing, or letting the short-term criteria of the financial world continue to guide investment towards what is likely to result in merely “a gilded age” of polarised incomes, very uneven growth and an incomplete realisation of the wealth generating potential of the ICT paradigm.

Carlota Perez is Professor of Technology and Socio-economic Development at the Technological University of Tallinn, Estonia, currently Visiting Senior Research Fellow at CERF (Cambridge Endowment for Research in Finance), Judge Business School, Cambridge University, and Honorary Research Fellow at SPRU. Originally from Venezuela, where she served as Director of Technology Policy at the Ministry of Industry, she is also an international lecturer and consultant, specialised in the social and economic impact of technical change and in the historically changing conditions for growth, development, innovation and competitiveness. As such, she has worked for various public and private organisations, for major corporations and governments in Latin America, North America and Europe, as well as for the EU, the OECD, the UN and other international agencies.

For many years she has collaborated with Chris Freeman in the study of long waves and techno-economic paradigms

Carlota Perez’ articles from the early 1980s and her book Technological Revolutions and Financial Capital: the Dynamics of Bubbles and Golden Ages (Elgar 2002) have contributed to the present understanding of the relationship between technical and institutional change, between finance and technological diffusion and between technology and economic development. ISBN 1843763311

Technorati Tags: Genesys, Perez, Call-to-Action, Trends

Technology, Entrepreneurship, and Inequality

Alfonso Gambardella, Sant'Anna School of Advanced Studies, Pisa, Italy

David Ulph UK government, London, UK

February 2003

This paper has some interesting insights as to the makeup of the skilled vs. unskilled workers within oil and gas. The number of unskilled workers in the energy industry is very small. Weather it is in the offices of downtown Calgary or in the field, the level of skill is generally very high. Since we are primarily concerned with the head office staff we can focus just on that "high skilled" group. The research done by these authors provides a good understanding of how the energy industry as it stands today, may evolve.

"This paper develops a model that compares some implications of the rise of these new industries with the traditional organization of firms and sectors based upon the large integrated companies of Chandlerian memory (Chandler, 1990). Our model yields three main insights.

The contrast of the authors in terms of firms is very high. To compare the Chandlerian firm with its structured hierarchy and emphasis on process and regimen, vs., the purely entrepreneurial company that can best be summarized as a Silicon Valley firm. And the two types of workers that are employed at each type of firm. The Silicon Valley skilled vs. the unskilled in the Chanlerian firm are fundamentally different.

"First, our two archetypes - Silicon Valley and the Chandlerian firm - entail two different degrees of inequality between the earnings of the skilled and unskilled workers." pp. 1

"Second, apart from skill-intensity, a notable feature of the new industries is that they entail knowledge externalities." pp. 1

"Third, our model shows that the marginal effect of an increase in the relative supply of skilled people on the total income (and therefore on the total output) of the economy is always higher in the equilibrium where the new industries dominate vis-a-vis the other. The intuition is intriguing as it is a natural upshot of inequality. If the skill premium is higher, then as the marginal unskilled worker becomes skilled, the raise in her income will be higher than if the economy was in the less unequal equilibrium" pp. 2

Which is the logical conclusion to the use of their model. Creating an equillibrium that is unique to the situation, and that is reflected clearly in the next quotation.

"Put simply, German skilled workers, with potential employment in companies like BMW, Bayer or Mercedes, have higher opportunity costs of setting up their own firms vis-a-vis Indian or Israeli engineers." pp. 4

With so much to lose by taking a risk as an independent machinist, it would be foolhardy to attempt entrepreneurship in a country like Germany. And in India it may be the only manner in which a highly skilled machinist could exercise the value of their skills. I would suggest that the equilibrium of highly skilled workers in the energy sector provides little incentive or disincentive for the worker to take a risk in an entrepreneurial fashion. Therefore a mix of both contracting and employment approaches exist for a person to being hired in oil and gas. With some companies such as Encana employing a 50% employee 50% contractor human resource strategy.

"Our model shows that a large relative supply of skilled people is likely to imply a higher total income in the Silicon Valley equilibrium vis-a-vis the one dominated by Chandlerian firms. This suggests that, as the relative supply of skills rises, skilled people may "direct" technical and organizational change towards the formation of new firms and industries that are skill-intensive, rely on knowledge externalities, etc., whereby their inventive capabilities can be best exploited." pp. 5

Well that is music to my ears. The high skilled labor would "direct technical and organizational change towards the formation of new firms and industries." I would normally be on the verge of describing this research as a call to action.

Conclusions

"In sum, the large Chandlerian firm has been a notable shield against inequality across skills for many years. At the same time, the knowledge spillovers produced by the new industries imply that the rise of such industries require co-ordination, which gives rise to multiple equilibria. This explains why even when comparing similar countries or regions, either the traditional sectors or the new business models dominate." pp. 31

Technorati Tags: Genesys, Call-to-Action, Lem, Research, Trends

McKinsey, Global Trends in Energy

This excellent article is subtitled "Energy and materials companies face a demanding future." They must start preparing for it now.

McKinsey Consulting have written a new entry in their "Energy, Resources, Materials: Strategy Analysis" entitled "Global Trends in Energy". Noting that we face a rather disruptive decade in which

"change and uncertainty as a combination of six macroeconomic, social, and business trends reshapes the competitive landscape."

And

"executives in these sectors will have to confront difficult strategic, organizational, operational, and technological choices".

I would certainly subscribe to these points and would boldly suggest the place to do that is here on this blog and the time is now.

The six macroeconomic trends include:

• Booming demand for energy.
• Basic materials resources.
• Shifting of supplies to remote and geopolitical unstable locations.
• Heightened security of the environmental effects of production.
• Consumption of energy and materials.
• Increasingly large capital investments needs at a time of regulatory uncertainty.

Such is the challenge we face today. This list accurately reflects MIT President' Professor Susan Hockfield comment that energy is now in what she considers a "perfect storm". Outside of World War II, I can't think of a more difficult time for the energy industry. McKinsey goes on to suggest

"Recently, McKinsey sought to identify the trends that will make the world of 2015 a very different place to do business from the world of today. In all, we identified ten of them: macroeconomic trends that will transform the global economy, social and environmental trends that will change the way people live and work, and business and industry trends that will generate new management approaches and business models. All ten will affect the energy and materials sectors to a certain extent, but we believe that six will shape their future and therefore deserve special attention."

In the area of human resources McKinsey defines a particular point about the demand for petroleum engineers;

"In the oil industry, the demand for petroleum engineers and development engineers could almost double over the next decade, and the hunt for scarce reserves will place commercial deal makers in high demand. It is a matter of concern that a shortage of experienced project managers who can handle complex capital projects (such as oil platforms or pipelines) may create bottle-necks that will determine whether multibillion dollar projects are finished on time and on budget."

A comment that I have made repeatedly in this blog regarding the increased volume of work necessary for each barrel of oil will increase, not decrease. The earth scientists and engineers are critical to the discovery and production of oil and gas. McKinsey closes the discussion with the excellent point;

"Executives who wish to exploit these trends must keep a watchful eye on them and be ready to respond swiftly to their implications."

And as McKinsey note in the above subtitle, the time is now. The scope of this problem is large and quite well quantified by their projection that $4.3 trillion dollars in capital expenditures from 2005 to 2030 will be needed for oil alone. In a related article, "Making the most of the world's energy resource" Mckinsey states

"New research... reveals that global energy demand is on a path to grow by 2.2 percent a year over the next 15 years."

The demand for energy has never been higher. The energy industry has never disappointed the market, and I don't expect them to do so now. Industry must organize themselves for these challenges and renew their focus on speed and innovativeness within their organizations. I agree the time is now and the place to start organizing is here, with this blogs software developments.

Technorati Tags: Genesys, Call-to-Action, McKinsey, Innovation, Trends