Is Petro Canada's executive compensation fair or reasonable?

No, but then again Mr. Ken Lay and Mr Jeffrey Skilling have been found guilty of 6 and 28 counts respectively of Fraud, Conspiracy and Insider Trading.

You be the judge.

Technorati Tags: Bureaucracy, Compensation, Conflict, Energy, Petro-Canada, Wharton

Who'll be the HSBC of the oil and gas industry, Part II

In HSBC we have a firm that has developed an overall global strategy to compete in the banking business at the highest levels. All based on the foundation of Information Technology and specifically their "Hexagon" system. So much so that the HSBC Hexagon Logo and the system are synonymous with the firm.

As of 2005 HSBC has continued in its strategy and are filing financial statements that are stellar to say the least. With $20.9 U.S. billion in pre-tax profits, overall, I rate this far superior to the earnings of both Microsoft and Google. I also have difficulty in assessing these as banking earnings, and would prefer to compare them to other technology companies such as Google and Microsoft.

That Hexagon brought HSBC's ambition of being the one of the worlds largest financial institutions into reality. Clearly this strategy has been implemented and optimized since 1982 when the system was conceived.

It's now 2006. Given the same situation in oil and gas, how could an aggressive producer use the Genesys system to enable them to be faster, more capable, more adaptable and more innovative then the next competitor. Using Genesys, its proposed software development capability, the joint operating committee as the primary organizational focus, who will be the first oil and gas producer to realize its benefits. Benefits that HSBC has proven are available with the appropriate IT strategy supporting the firms main strategies.

What I am restating here is the information that I have commented on many time in this blog. Information that I fundamentally believe in and would expect that will not be long in finding its audience. The world needs the energy resources. We have what the President of MIT is calling the perfect energy storm. One in which our current deliverability is not sustainable due to the prolonged "cheap" oil era. We as global business leaders need to form Genesys for the oil and gas industry, just as Hexagon was to HSBC.

Technorati Tags: Accountability, HSBC, Intelectual-Property, Technical Vision

Who'll be the HSBC of the oil and gas industry.

I was struck by the new logo and branding campaign that HSBC is revealing at their new location here in Calgary.

"The World's local bank."

I have to admit first off that HSBC is one of my favorite companies of all time. I was first introduced to the strategy and vision of its leadership in the second year of my MBA program. We were asked to review the company for one of many thousands of readings we reviewed. What was unique and struck me was that they had hired the head of information systems to be the new company president. This was the top president of the entire company, not a subsidiary or branch, the global operation. Gutsy move for a company to do, especially since this was well before the understanding of technology that should be present today in every board room.

Here are my edited notes of the reading.

Expectations and impacts of a Global Information System: The Case of a Global Bank from Hong Kong.

Introduction

The world's industries now must compete on a global scale. The opportunity and threats of the global marketplace provide industry with constant pressure to build world products, and tailor products to customers in diverse markets.

The banking industry has been particularly affected by the changes to globalization with the combination of competition, deregulation, the availability of cheap IT, and the shift towards a global outlook by large industrial organizations which have lead to dramatic changes in the strategy and structure of the banking industry.

HSBC's hexagon application is studied to determine how one bank has used IT to coordinate IT strategy, global assets and overall strategy to compete with IT as a cornerstone and on a global scale.

Expected impacts of global IS in the financial services industry.

The Hexagon system.

HSBC is an international bank with operations in 79 countries and 5500 offices. 120,000 employees, a size that only Citibank can match. IT has been an explicit part of HSBC's strategy, with 6000 worldwide IT staff heavily involved in product development. The Chairman and CEO, John Strickland is a computer programmer by training and began at HSBC in 1966. Hexagon began conceptually in 1982 headed by Strickland. A strategic threat was identified when Citibank and Chase were both able to provide corporate customers with terminals to access "in country" transactions and balance data on their accounts.

HSBC customers were well to do international travelers that may gravitate to the type of services being offered by Citibank and Chase. It was determined that HSBC would need to leapfrog the competition in terms of functionality, the concept was to provide the resources of a worldwide banking system right to the desktop manager. The ability to know real time information on the cash balances, receivables and securities balances worldwide would be the objective of Hexagon.

In 1985 the first operational version offering basic account information and payment instructions was installed at 5 Hong Kong banks. In 86 it was installed at locations in the US, UK, Singapore and Japan. The ability to send and receive email between branch manager and customer was added. In 1989 a functionally rich version of the application was distributed to 30 countries of the HSBC.

Currently the Hexagon system (circa 1997 I believe) is a global electronic banking service giving customers 7 x 24, 365 day service from the customers PC in multiple languages and operating systems. 500 other banks are using the Hexagon system and Hexagon is also tied into the international SWIFT and Automated Clearing House services of check clearing. JPMorgan uses the services for their private banking clients. Checks can be written online and sent in 40 different currencies.

These facilitate the international firm the ability to distribute money as required to any region within the world on their desktop.

Hexagon Performance Impacts.

To asses the impact of Hexagon on the HSBC we need to look first to their customers and secondly assess the performance of HSBC expected functional impacts of a global information system and finally examine HSBC's overall firm level service.

Customer Acceptance.

The growth of customers on the Hexagon system since its introduction to include 50% of all electronic international corporate banking transactions worldwide.

Impacts in terms of Hexagon's purpose.

Scale and Scope Economies.

The costs associated with incremental use of customers is marginal. Repositioning to other customers is a simple interface change to accommodate the needs of the new customer group.

Hexagon has helped HSBC to become the largest bank with assets of $452 billion vs. Citibank @ 310 billion and Bank of America @ 260 billion. It is also one of the largest in terms of its global reach with only Citibank operating in 98 countries as being larger. (Again 1997 I believe. )

Product Value

Hexagon offers customers opportunities to reduce costs by saving transactions processing steps. Many customers have their corporate financing departments tied into Hexagon and operating them as if they were part of the ERP systems. (i.e.; integrating payroll within the Hexagon systems)

If Hexagon provides value to its customers then they should be able to charge a higher fee for the service. Interest income plus other revenue were compared from 1990 to 1997 to HSBC and its competitors. A comparison of pretax profit also showed that HSBC margins grew from 21% to 42% during the seven year period and from third position to first.

Efficiency.

Operating costs usually associated with the staffing of operations are reduced due to the efficiency of the software.

In terms of the staff expense as a percentage of operating income, HSBC is in the middle of the pack. The conclusion is that Hexagon has not reduced average transaction expenses. When we examine premises and equipment expenses as a percentage of revenue, HSBC expenses are the lowest among the peer group of banks. This suggests that Hexagon has reduced the physical bank space required and as such does not show up when measuring Hexagon's transaction costs.

Organizational Effectiveness.

Hexagon integrates much of the back end operations of a bank. The securities and payments part of their operation.

Competitive advantage.

The full value of Hexagon depends on its geographical scope. The ability to provide service in each country a customer may operate in provides the value. Therefore someone wanting to compete on the basis of the same functionality as Hexagon needs to establish just as large a network of global reach as HSBC, which limits the competition to a very small amount of companies.

Success of HSBC

HSBC's explicit strategy includes a focus on the development of cutting edge IT applications to support its global operations. For 1997 HSBC pretax profits were $8 billion US. HSBC was the tenth largest in its peer group of 100 banks, and was number 1 in pretax profits for 1995 to 1997.

Discussion, Limitations and Implications for managers.

The results strongly suggest that Hexagon affects HSBC's performance by increasing economies of scale and scope, providing additional value to customers, increasing efficiency within HSBC and improving organizational effectiveness. In addition network externalities in the product provide disproportionately more value to the customer when every location at which the customers wants to do business is covered by the system.

These also create substantial barriers to entry for any competitor that may want or need to compete with HSBC. The configuration of the remaining aspects of the bank are different then most other banks around the world. The ability for HSBC to augment the value and advantages of the system by configuring their physical assets to compliment the Hexagon system are key in achieving many of the value propositions.

Limitations.

This research shows that firm level performance is affected by many factors. While our analysis focused on one broad product line, the quantitative and qualitative analysis, nor all of it together, proves that Hexagon positively affected HSBC's performance. The researchers however believe that Hexagon's value proposition is quite persuasive.

Implications for Managers.

This is further evidence of the extreme importance of IT infrastructure to their business. Customers will begin to demand faster transaction speeds, lower transaction costs and geographic scope. Only highly integrated global systems can hope to compete on this level.

Technorati Tags: Genesys, HSBC, Technical Vision

Dr. Giovanni Dosi, Sources Part IV, E

The externalities of the innovation process.

Dosi has been clear in establishing the public and private components of technology and the innovation process. Specifically the appropriability of the innovation process is endogenously and exogenously influenced. That innovation and science are linked, and each contribute and inhibit the development of the other. Oil and gas firms are now tasked with not only the development of the science, but must understand the sciences development. The same attributes apply to the process of innovation as much as they do to their underlying sciences.

In this section Dosi takes the public component and divides it into two forms.

"First, there are certainly "free-good" elements, in technological progress, essentially stemming from the free flow of information, readily available publications, and so on." p.1146

Secondly, the "un-traded interdependencies among sectors, technologies and firms and takes the form of technological complementarities, synergies, flows of stimuli and constraints that do not entirely correspond to commodity flows." p.1146

Here Dosi asserts the "production of bicycles drew technological knowledge from the production of shotguns". This does not necessarily warrant much in terms of further study. What Dosi is attempting to do here is lay some further groundwork that will be added to in part F and in part "G Some Conclusions". Therefore I am only adding or stating these components now in order to fill in some value in the next Dosi entry.

Technorati Tags: Dosi, Energy, Exploration, Genesys

Another morning, another call to action.

Mr. Olivier Appert, Chairman and CEO of IFP has written a fine conclusion that leads me to comment at the end of this blog.

"In order to meet the world's needs and demands for energy, while simultaneously observing our current energy supply and protecting the environment, the oil and gas industry will have to solve many complex technological problems in the coming decades and continue to innovate as it has done since its inception.

Recent scientific and technical advances, the fruits of collaboration between the worlds of research and industry, have led to a profusion of promising emerging technologies and represent key assets for preparing for the future, particularly in terms of managing the energy transition from oil and gas to new energy sources.

In the face of increasingly fierce competition, it is imperative these new challenges become integral to our research and innovation strategies. Developments will play a crucial role in guaranteeing genuine sustainable development for the world."

I can assure Mr. Appert that he is 100% consistent with the Plurality thesis I wrote in 2004. It was at that time however that the recognition of the capability of the oil and gas industry as represented by the hierarchy would fail in this critical task. That new and more innovative organizational forms are required. The joint operating committee being the global cultural manner of the oil and gas industry, is the financial, legal and operational decision making frameworks as well. The joint operating committee is summarily ignored by the hierarchy, who's only claim to fame is the accountability framework. If you hear a manager in a company complaining about Sarbane's Oxley, then you not only have a hierarchy in full control, but a hypocrite of the highest order. It is Sarbanes Oxeley that defines the scope and value of bureaucrats justification, salary and pension benefits.

So as I noted here yesterday, SEC Chairman Christopher Cox understands that the way to redefine the accountability framework is through the Extensible Business Reporting Language, and the SEC's tag library. What we therefore need to do, is first and foremost, build the software to define and support the joint operating committee as the natural form of organizational structure. Until we do this, these calls to actions are just words that soon will fade in there meaning in the face of the angry energy consumer who wants to know why they can not drive their car or heat their home.

This is serious, if your expect the current organization of the oil and gas industry to solve this, you first better explain it to them fore I have not seen the recognition that Mr. Appert's report is generally accepted.

Albert Einstein said two pertinent things.

1. Today's problems will not be solved by today's thinking.
2. Doing the same thing, over and over, expecting different results is the sign of insanity.

Technorati Tags: Accountability, Bureaucracy, Call-to-action, Christopher-Cox, Genesys, Plurality, Technical Vision, Thesis

Calls to action, a summary.

Occasionally I will post a summary of the number and quality of the Calls to Action I am finding today. Each of these have been reflected on in this blog and can be searched by their technorati tags.

To date: (no particular order)

• Thomas L. Friedman in his book "The World is Flat".
• Oxford Analytica.
• Chrisotopher Cox, Chairman of the Securities and Exchange Commission using XBRL.
• Harvard University.
• McKinsey Consulting.
• The Oil and Gas Journal.
• MIT President.

One would think that the oil and gas companies, investors, users or developers might want to start hitting the PayPal button, make a donation and we can start building this system.

Technorati Tags: Abstract, Call-to-action

Another day, another call to action.

The Wall Street Journal continues on its tradition of producing some of the finest articles. This one about the relatively new Securities and Exchange Commissioner (SEC). Mr. Christopher Cox. Not only has the new commissioner have a great name, but he also has a good idea that dovetails well with what this blogs purpose is.

"Build software that manages the accountability framework, then alignment with the financial, legal, operational decision making and cultural frameworks is achieved. The recognition that these frameworks are defined and constrained by the Joint Operating Committee are how the producer achieves the speed, innovation, capability and adaptability to meet the markets demand for energy." (Quoting myself here.)

Mr. Christopher Cox is interested in doing the same for the entire world's financial trading markets, which as SEC commissioner is his responsibility.

By making the types of comments that Commissioner Cox states in the WSJ article. It is clear to me that he is not only on the right track but will resolve the largest administrative nightmare of the public company reporting process. To me how Sarbanes-Oxley gets resolved from here is difficult. To make any major amendment to it would make it appear as the framework has become unmanageable and invite the Ken Lay's, Jeffry Skilling and Petro Canada's back for more hollowing out of the investors wealth.

How Sarbanes-Oxley legislation is eliminated from the process is by eliminating the need for the 800 plus forms to a handful of standard tags in the Extensible Business Reporting Language. I can only thank that the Commisionner understands the technological capabilities and can apply it to the SEC. I have spoken of meta tags and meta data before, however, I'll leave it to the inventor of the Internet, Sir Tim Berners-Lee to describe why Mr. Christopher Cox's and Mr. Paul Cox's (me again) ideas are workable.

When I speak about the demise of the bureaucracy I am saying the same thing that the Commissioner is saying here. He is laying the groundwork and infrastructure of how investors will be able to manage their assets in the future. Note that I did not state the Investors can manage their companies, but the Investors Assets.

That an investor could purchase an interest in a well, and as such have the entire accountability framework in alignment with the financial, legal, cultural and operational decision making frameworks as captured and defined by the regulation and the software that defines the Joint Operating Committee, and that working interest then is a tradable asset on the worlds exchanges, then we are talking about the new society.

If I have not made it clear at this I point, I'll state it explicitly. Genesys and this blog have adopted the SEC's XBRL tag library. Wow, so now we'll be compliant with the SEC, that was easy.

Technorati Tags: Accountability, Bureaucracy, Call-to-action, Christopher-Cox, Compensation, Energy, Genesys, Java, Petro-Canada, Plurality, Thesis

Another week, and another call to action.

This one from Oxford Analytica. And as there website reflects;

"Oxford Analytica is an international, independent consulting firm drawing on a network of over 1,000 senior faculty members at Oxford, and other major universities and research institutions around the world. Founded in 1975 by Dr. David R. Young, Oxford Analytica has built an international reputation for seasoned judgement on and analysis of the implications of national and international developments facing corporations, banks, governments and international institutions."

Seeing how they're derived from academia, and assert their independence as a key component of their offering. Oxford Analytica's conclusions and analysis would lead me to believe and trust in them more so then a Cambridge Energy Research Associates (CERA) report. CERA reports which are funded and directed by the energy industry itself, tend to have a self defining and self promoting style of research and conclusions.

It is fair to assume Oxford Analytica's report entitled "Cash rich oil majors focus on frontiers" has little direct financial support or influence by the oil and gas producers. A bias that is evident in many of the alleged research reports from CERA. Research reports that tend to be more focused on the next quarterly outcome, and Dr. Daniel Yergin's strong opinions of how much oil there is, or isn't.

Oxford Analyticas explicit conclusion is stated as;

"Technological lead will prove critical in the efficient exploitation of frontier oil provinces. Upgrading portfolios means majors will divest assets that provide material opportunities for small and medium-sized independents."

Kind of resonates with the fact that the large producers are unable to keep up to the marketplace demands for energy. Or perform in an environment of speed, innovation, capability and adaptability. But then I am just as biased as CERA is in that the hypothesis that I developed in September 2003, and attempted to have funded by Petro Canada et al, that the Joint Operating Committee was the natural form of organization for the oil and gas industry, and that organizations were defined by their software capabilities, was handed to CERA to research as I was hustled to the street by Petro Canada's management. It's just too bad that CERA is not only biased, but also very slow in reaching the research conclusion that I did in May 2004, and, Oxford Analytica have been able to agree upon currently.

If you can sense a bitterness at the attempted theft of my intellectual property by the criminal minds of Petro Canada and CERA you would be incorrect for two reasons. One I ended up with the copyright by publishing the research conclusions to my hypothesis first (the underlying foundation of this blog) . Secondly, I have a right to be sued, as stated here before and documented by Dr. Thomas C. Schelling, a right that I cherish more each day and pray will happen soon.

Technorati Tags: Bureaucracy, Call-to-action, CERA, Conflict, Exploration, Oxford, Petro-Canada

Adaptability, Sun may have something there.

I pirated the Sun CEO's comment that "adaptability" is a key component in business. I noted in an earlier entry that Petro Canada would be unable to adapt to an explorationist mindset due to the bureaucracy. Adaptabililty vs bureaucracy. That will be a major part of the new frontier. In pirating this new definition of the term "adaptability" I now realize that there is some underlying significant meaning.

When added to today's other critical business components of Speed, Innovation and Capability; adaptability establishes new performance criteria for individuals, societies and organizations.

One of the major discoveries in my research was based on Dr. Anthony Giddens Theory of Structuration. That society, people and organizations need to move and progress together, or there will be failure. It doesn't take a lot to realize the troika that Giddens defined is currently out of synch. With the bureaucracies of the organizations impeding the progress of people and society. That a failure will occur due to this non-synchronous state is a given, and I am betting that the bureaucracies will be dispatched to the trash heap sooner then most can imagine.

Dr. Wanda Orlikowski built upon the Theory of Structuration when she defined her Model of Structuration for Technology. Dr. Orlikowski's model asserts that a fundamental component of society is technology, that technology provides a duality and therefore is a constraint or inhibitor to successful advancement of society people and organizations.

I asserted in the development of my hypothesis that;

"hierarchical organizational structure(s) is(are) an impediment to advancement of the oil and gas company and society in general".

My research built upon the Theory of Structuration, Model of Technology Structuration and hypothesis to determine that "SAP is the bureaucracy". That organizations are defined and constrained by the software that supports the organization.

The purpose of this blog and the developments at https://genesys.dev.java.net/ are to define an organizational structure of Speed, Innovation, Capability and Adaptability in the global oil and gas industry.

Technorati Tags: Adaptability, Bureaucracy, Exploration, Genesys, Java, Petro-Canada, Structuration, Schwartz, Sun

Why does Petro Canada get all the attention?

To prove that the blogosphere is more powerful then the bureaucracies. The ability for these bureaucracies to survive does not exist. In an environment where innovation, adaptability, speed and capability are required, who needs bureaucrats.

The need to prove that Petro Canada is run for the betterment of the managers "stock" options. Or as I like to refer to them as "entitlement" options. The management can not expect that anyone is going to overlook their use of the treasury for their own purposes. Do they not recall Enron or Worldcom?

Its not personal, but Petro Canada's staff took the time and effort to make sure that I understood that any of the efforts I made in developing this software would be minimal and unsuccessful. That my time in the oil and gas industry was over and that I should find work in other industries. So its just so much easier to pick my targets after this treatment at the hands of their so called "senior" management. Since they have had the luxury of using their power to make my life miserable, all is fair in love and war.

That these organizations as represented by Petro Canada have failed. In every metric of financial, production and particularly earnings, they will begin to show signs of being severely strained. I believe a company that was successful in the exploitation era, is an abject failure in the exploration era. They can not change their stripes.

These failures are beginning to be evident in some of the companies already. Failure is the most advanced in Petro Canada, and therefore picking targets is easiest when they pretend to continue on for the betterment of their shareholders.

Technorati Tags: Exploration, Genesys, Java, Petro-Canada