Chandler on Decision Making

In the March 1973 Journal of Economic History Professor Alfred D. Chandler presented a paper entitled "Decision Making and Modern Institutional Change". A few days ago I commented on the velocity of productivity in the volumes and speed of decision making and idea generation in oil and gas. The origins of these comments were the Google video of CEO Eric Schmidt, and the term velocity as used by teams of Agile-Scrum developers. Velocity is the key metric in determining the through put of the software development team. In this paper Chandler also discusses the concept of velocity and attributes it as the key success of the large firms over the past 100 years. I think many of the points that Chandler makes can also be applied today. A time when the challenges to the large firm are significant. Chandler notes;

The potential of the new means of transportation and communications could only be fully realized through new methods of organization. The operation of the railroad and telegraph systems required the operation of a complex managerial structure to assure steady and continuing flows of information and orders essential to guide the movement of trains, traffic and messages. Because of greater speed and fewer trans-shipments, a railroad car could make in two days the round trip that required a stage coach or canal boat a week. By careful coordination of flow within and between the large railroad enterprises, the time involved decreased still more. As the rate of traffic flow increased, so did output per worker and per unit of capital and equipment used in the movement of goods. p. 6

The Information & Communication Technology Revolution (ICTR) is assumed to be beginning its long process of impacting businesses now. Although these technologies have facilitated enhanced speed in all organizations, new methods of organization are necessary to enable greater speed and velocity. The movement to new methods of organization has been resisted by the current management, as it conflicts with their established power. People, Ideas & Objects has had no success in convincing management of the need to change to the JOC. Theirs is a static world where, as we will begin to see in the current annual report season, is commencing on a period where their speed and innovativeness are inadequate to meet even elementary financial performance. Specifically I think that higher operating and capital costs will be directly attributable to their lack of speed. And their large balances of indebtedness are long term constraints to their viability. Particularly during times of interest rate increases. All that management have done is fully valued their debt and obligations. I have asserted on this blog before, as the financial performance of the current bureaucracies deteriorate, the innovative producer supported by the People, Ideas & Objects software application and the Community of Independent Service Providers will enable the innovative producer to purchase many of these assets from these bureaucracies. But the software has to exist first.

The briefest of historical sketches of the rise of large scale managerial enterprise in American transportation's, communications, distribution and production, emphasize that the economies of scale within the firm resulted far more from speed then size. It was not the size of an enterprise but the velocity of throughput that permitted economies that lowered costs and increased output per worker and per machine and so provided the classic, competitive advantage. Speed brought size, but size in no sense brought speed. p. 9

Clearly the bureaucracies size and lack of increasing velocity are the issues. Such were the advantages of size and speed that Chandler notes;

Once such economies were attained, the large managerial, multi-unit enterprise rarely disappeared. p. 10

Therefore the problem can simply be rectified by increasing their size and speed. If only things were so simple.

Increased velocity in turn intensified the need for complex managerial organization. p. 11

In a dynamic, connected and virtual world it is easy to focus on the problem of today. Our focus however needs to be on larger issues as we have little that we can do to influence performance by focusing on the short term. This change in culture from optimizing today to innovative will not be an easy process. It however begins by the investor / shareholder seizing the industry from management through the process mentioned above. The process of seizing the control of the industry begins by building the necessary software and communities that will ultimately support the innovative producer.

The senior executives at the top attempted to focus their energies on the critical decisions concerning present and future allocation of resources. p. 11

As we reflect on the performance of the industry over the past year. We see the economy beginning to show signs of real life. One that may be as a result of the enhanced efficiencies and innovativeness brought about by the ICTR . Demand for energy will begin to grow again. Energy prices will respond, and the reallocation of the financial resources dedicated to innovation will increase. We should look back on the history of the hierarchy and realize two things. One is the significant contribution it has made to society in terms of our quality of life.

The dominance of our society by this and other large-scale organizations is one characteristic of the twentieth-century that distinguishes it from all others. The enormously increased speed and volume of economic activity is another. p. 15

And secondly realize that we stand on the shoulders of several generations of giants. If the bureaucracy degrades as a result of the forces aligned against it. How far will society degrade. We need to act to begin to develop the new organizational methods necessary to carry us for the foreseeable future.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Velocity of Productivity

Velocity of productivity is an idea that came to me as a result of watching this YouTube video of Google CEO Eric Schmidt. As with many of the talks that he gives, this one provides some tangible ideas that can be built upon, I highly recommend watching the entire video, particularly the Q & A.



Of interest he notes the explosion in information has happened. During the beginning of time to 2003 Schmidt states 5 Exabytes of data were generated. In just the past seven years we are now producing 5 Exabytes every two days! This fact got me thinking about the type and pace of work that was being done in 2003. How in many ways it seems that the past seven years feels like several generations difference in terms of the scope of the changes. It seems we should ask ourselves how much more productive we are today in comparison to 2003? Once we ask that question, you begin to wonder how we will maintain our productivity growth in the future, or, how will we deal with the demand for increased productivity velocity.

Not only is the volume of productivity increasing, the work that we are doing is changing. Ideas and decisions are the two areas where computers are unable to affect any change. Making ideas and decisions the type of work that we can do effectively is the business of People, Ideas & Objects and the Community of Independent Service Providers (CISP). I see the pace or velocity of ideas and decisions being the area that will now be influenced by the Information & Communications Technology Revolution (ICTR). Using the metrics of the information explosion, we can almost map the 200 fold increase in information directly to the volume of decisions that will be made in seven years. Therefore, however many decisions you make today, multiply it by 200 to get a feel for the number of decisions that will be made in seven years. Whether these assumptions are reasonable or not is not the point. Clearly what is in process today is the velocity of our productivity is accelerating on a logarithmic scale.

In the video Schmidt states the only constraint to doing his job as CEO is time zones. Noting that all CEO's should be operating at that level. It becomes obvious to me that if we accelerate our idea and decision making velocity, our only constraint are time zones. Spending time getting to the office in the morning to meet attendance requirements will be a destruction of up to 3 hours of our day. A day where the velocity of productivity does not afford this type of luxury to be expected of managers. When location is not a constraint, "what's an office" is maybe a question that should be asked.

Based on this slight diversion in thinking! I see the economy is responding to what Professor Carlota Perez has always maintained. The old economy ceases to be able to carry the weight of society, and the new economy is robust enough to carry the substantial weight of the old economy and much, much more. We see these factors in many of the technology companies earnings surprises and I expect the pull of a more robust and exciting ICTR based economy will begin to draw people into higher velocities of productivity.

I would like to invoke elements of the vision of the Draft Specification. Three of the modules, the Petroleum Lease, Resource and Financial "Marketplace" modules are using the marketplace as the metaphor for where people interact. The user vision involves the use of Avatars, both virtual and real, in which people can interact within those marketplaces. More information on these elements of the Draft Specification are available through the review of this blogs archives and our User Vision. Without this type of environment, purpose built for the oil and gas industry, our productivity velocity will not reach its full potential.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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