Organization, the key.

This blog is dedicated to ensuring the optimal organizational structure is provided for oil and gas. I have noted that information systems need to support and define the organization, how a technical vision can fulfill this promise, and some of the accounting related issues. I think that we have found some important issues that need to be debated and discussed on an ongoing basis.

One critical area that we have not discussed so far is how the organizational command and control is achieved. This being a particularly important element and one that touches on the technical vision, accounting and management related issues and joint operating committees 5 frameworks. (The five frameworks being legal, financial, operational decision making, cultural and accountability.)

Without the hierarchy to define who is responsible, accountable and authorized, little if anything will be achieved. Individuals are how organizations achieve their tasks. Who represents the organization, their validity, their security and authorization can all be encapsulated in the software and have much of these interactions operate seamlessly. But how do the people organize themselves?

Simple military styled command and control. By layering a matrix of military structure, from General's to Privates, over the joint operating committee, the how and who is sourced, tasked and completed.

There are many aspects of this new issue that need to be discussed. Today I am starting a new series on how this layering of the human, physical and tangible resources can be deployed in a military styled fashion under the tag Military Command. Enough said for today and much to think about.

Technorati Tags: Dosi, Energy, Genesys, Military Command

Competition vs. coopetition.

A very good friend noted the nature of the oil and gas business is not one for the sharing of intelectual property. Competition is the predominate culture of the industry. When anyone talks about culture and change we know that in any organization the two traditionally have not mixed. How cultural change occurs is usually by extreme forces that compel the culture to be dealt with. So how are these ideas of Brown and Hagels "Creation Net" able to function in the competitive culture of the oil and gas industry. Please don't hesitate to comment. This issue needs a vigourous debate to get to the ultimate solution. Here are a few thoughts of mine.

Here in Calgary we are on a two week supply of concrete. Monstrous trucks used to mine coal and heavy oil are having difficulty in sourcing the volume of rubber necessary to meet their tire wear demands. Caterpillar is selling most of its production into Asia which is creating shortages of adequate industrial equipment. And please don't even ask for a Waukesha Engine. This is not an environment that competition can prosper in. Just as President Ronald Reagan revolutionized economics with policies that define and support what globalization is, new economic forces are beginning to grow and redefine the supply / demand trajectories. These new economic forces, in my opinion, are not linear, but logarithmic and possibly even exponential to yesterday's performance.

Company's that want to participate in this new economic reality have to address their sphere of influence and increase their capacity through the "Creation Nets" that Hagel and Brown define. Their three key components for effective creation nets were defined as;

Uncertain demand for goods and services.
When your customers are down the block, servicing their demands was relatively easy. Today your customers are global and their demands unknown and unpredictable. Your ability to secure methods to control production, demand management and inventories are tools that are unable to deal with the real issues in this very near future.

A need for the participation of many different specialists if creation and innovation are to occur.
Expanding your sphere of influence to include groups that would have previously been considered your competition provides two benefits.

• Increase the volume and quality of brains towards the problems at hand, facilitating and spreading innovation.
• Allocate the finite resources to optimize the most efficient production on a global basis.

Rapidly changing performance requirements in the marketplace.
As I suspect, starting with the second quarter of 2006 Petro Canada's financial performance will shock everyone. How could a firm in this energy environment do the things that they have done, to have caused so much destruction? The evaluation criteria for success and failure will need to be redefined. That Petro Canada and Enron have both reported "earnings" has nothing to do with reality, or the future.

Conclusion:
If we don't align ourselves to solve these problems and address these cultural issues, then we are destined to suffer unnecessarily. The hierarchy and bureaucracy are in complete control. They are the most self serving and destructive forces in this new business environment. They exist to serve the powerful few and must be stopped.

In my plurality thesis I have defined that the software is either a constraint or facilitator to organizational performance. The culture of the oil and gas industry is derived from the joint operating committee. Its key value creators, the engineers and earth scientists are born of a sharing and collaborative academic culture. I don't want to change the culture of the industry, I want to realign it to where it belongs.

However, after a century of big business models. Models that enabled substantial organizational performance, those models have failed. Its now time to say goodbye to the bureaucratic culture and re-align the oil and gas industry to its more natural cultural influences of the joint operating committee and scientific roots. To meet the customers energy needs for the long term requires we build the software to support these "Creation Nets".

Unfortunately the financial resources necessary to build these applications are firmly held in the tight fist of the bureaucracy, so lets start cooperating.

Technorati Tags: Adaptability, Bureaucracy, Creation-Nets, Genesys, Hagel-Brown, Intelectual-Property, Petro-Canada, Plurality, Thesis

Petro Canada announces new, software?

Just a couple of days ago I ran a series of how a firm like HSBC in 1982 set out to become one of the world's largest financial institutions on the basis of its Information Technology strategy. Here we have Petro Canada announcing that it has purchased a "new" software application. Next we'll see announcements when the company has turned on the lights. I mean, why are they announcing that they purchased a new software application?

Maybe there's something exciting like the HSBC findings. That Petro Canada will be providing the world with a bold new strategy! I some how doubt it. The company that sold them the software, Information Builders and their oil and gas software offering can be seen here. They like Petro Canada have a unique vision regarding entitlements that I find best reflected in IBI's statement;

"That's why industry leaders such as Gulf Canada Resources Limited, Northwest Natural Gas, and Westcoast Energy, Inc. have turned to Information Builders to deliver crucial business information to managers, employees, customers, and partners."

Now if I am not mistaken Gulf Canada Resources Ltd. being purchased by Conoco Phillips in 2001. Westcoast Energy being purchased by Duke around the same time. Here we have Petro Canada making a press statement about the purchase of a software application that is so well utilized in oil and gas, that the vendor company cannot even bother to update its customer list from five years ago?

The accountability charges that I have made here are beginning to stick in Petro Canada's back side. The management being as progressive as they are, by selecting and making the acquisition of new software are directly responding to the charges that I have made in this blog. Petro Canada's attitude that the selection of the alternative "Information Builders" accountability framework is the preferred model to what I and SEC Chairman Christopher Cox are talking about. It is also evidence that they understand my thesis that the software defines the organization. By selecting a second rate vendor that has no real offering and making hay about it in the press is the best this bunch of half wits can generate.

However, like so much of their past activity, the transaction only fuels the concern that they are lost and should be dealt with promptly by the Petro Canada shareholders. I will leave it to my readers to determine if the charges that I have made in this blog are valid.

Technorati Tags: Accountability, Christopher-Cox, Conflict, Genesys, HSBC, Petro-Canada, Technical Vision, Thesis

To me Petro Canada is more disturbing then Enron.

There seems to be an attitude at Petro Canada that the company is involved in the oil and gas industry. If it is seen to be "active" for the sake of "activity", then the fleecing of the investors, based on the Enron model, can continue. Yesterday it was learned that the Board of Canada Southern Petroleum Ltd. rejected the Petro Canada offer, and in their response to the press, Petro Canada reflected that they thought the offer was fair and would not be amending it. Petro Canada is not attempting to be successful, its not attempting to be a failure, it is just involved in diversionary activities.

Lots of press that makes it "appear" that they are a progressive and prudent company. Recall that my prediction is that Petro Canada's second quarter will be an abysmal performance. How they report the validity of their "Panic" business model, and "hourly" strategy sessions will have a deep and compelling reflection of the firms character.

So in the activity column, Petro Canada is looking to augment their capability through the acquisition of some land in the Arctic. When the offer is rejected, they turtle and go home. The objective, to look as if they are an active explorer, being achieved in their minds, they can then turn to the stage producer to commence with the next show.

I found some pertinent analysis in Saturdays New York Times regarding the Enron trial. The quote was;

"The Enron case will forever stand as the ultimate reflection of an era of near madness in finance, a time in the late 1990's when self-certitude and spin became a substitute for financial analysis and coherent business models. Controls broke down and management deteriorated as arrogance overrode careful judgment, allowing senior executives to blithely push aside their critics."

Yesterday I promised my readers that I would summarize the Petro Canada story for them. In selecting the tag on this blog "Petro-Canada" will aggregate all my "Petro Canada" stories for the readers. This is why Chairman Christopher Cox's use of tags in the SEC's accountability framework is so powerful, its so damned simple.

It appears to me in the case of Petro Canada, they have added new elements to the Enron styled rule book, however, to me, this is only proof that history does repeat itself.

Technorati Tags: Accountability, Bureaucracy, Christopher-Cox, Compensation, Conflict, Energy, Genesys, Petro-Canada

Petro Canada, the series.

Well the word is out that both Ken Lay and Jeffrey Skilling are now convicted felons. The attainment of this key event in my marketing plan has finally come true, and I can now commence phase II. I will proceed with the analysis regarding Petro Canada, and determine why it is they have not been charged, yet.

In today's coverage of the Enron story, the Calgary Herald wrote;

"Meanwhile, Canadian Experts said that had Lay and Skilling run their company in this country the two would likely still be "walking free"".

And I can assure you, if Petro Canada were operating in Texas, they too would have been in prison by now.

I have prepared a long list of stories that I will be writing in the next few weeks about Petro Canada. These stories will focus on a systemic inability to account for their actions. When confronted with the facts, the company has skirted the questioning adeptly through obtuse reporting and what is best described as a shell game. I will start tomorrow with a summary of the accusations that I have made in this blog to-date and continue on with my reasoning why Petro Canada should be made to account to their shareholders and several other interest groups.

It is my opinion that all firms in their right minds would have assessed the risks and opportunities of the criminal charges and legislative environment created in the U.S. since Lay and Skilling were first discovered. It is my opinion that Petro Canada did that assessment and determined that it would somehow not affect them. It is clear now that they have a made a critical error in judgment and will now need to account for the $1 billion + in stock options ($199 million of which is in the money) along with a series of actions that have permanently crippled the company. But when you are asked to manage the nationalized oil and gas assets the Canadian Federal Government confiscated from the international producers, a pervasive mindset of being entitled to your entitlements begins to penetrate the minds of management and as we shall see, certainly not a commercial mindset at that.

I can assure you this blog has caught the attention of the management of Petro Canada. With Google Analytics there is not much of who and what your readership is interested in, Petro Canada as a topic scores highly on this blog. With the stated strategy that I am employing in this conflict as "I have a right to be sued" I can guarantee my readership the next ten days or so will be very entertaining. The first thing that may stand out is that Petro Canada is / was substantially smaller then Enron. But the scope of the executive compensation and cover up at Petro Canada is not only larger in monetary terms but far more serious. After all they knew what Lay and Skilling were up to. How do they propose to explain that they were not aware?

Finally I will tie in the actions of Petro Canada's management in making sure their continued entitlement's to their entitlements were not challenged by the thesis of this blog. This thesis being that the Joint Operating Committee was the natural form of organizational structure of oil and gas firms. That the bureaucracies were redundant is a given that is tacitly understood by everyone, but to define the Joint Operating Committee as the key organizational focus required the software to be built before the changes would occur.

Petro Canada's exclusive and lucrative party was being threatened by this thinking. They realized if the software wasn't built, then the risk would be eliminated and through their selfish and un-constructive thinking, have taken these concepts to make their party continue on indefinitely.

As custodians of the investors resources Petro Canada will be held to this higher standard of expectation.

Technorati Tags: Accountability, Bureaucracy, Conflict, Energy, Exploration, Genesys, Intelectual-Property, Petro-Canada, Plurality, Thesis

Number 9.

The number of calls to action increases by one more. This one more local. Mr. Murray Edwards is sort Calgary's version of the local boy done well. At 46 years of age he has amassed a fortune of several billion dollars and is currently holding down the following roles.

• President, Edco Financial Holdings Ltd.
• Vice-Chair, Canadian Natural Resources Ltd.
• Chair, Ensign Energy Services Inc.
• Chair, Magellan Aerospace.
• Owner, Resort of the Canadian Rockies Inc.
• Co-Owner, Calgary Flames.

Mr. Edwards is quoted in the May 2006 issue of Alberta Venture, in which he is the cover story "Who Cares About Respect"

"We're really big proponents of flat organizations where people have a sense of ownership."

So lets mark this down as number nine in a long lists of calls to action and welcome Mr. Edward's to the party, maybe one of his energy related firms will be the first to donate to these software developments.

Technorati Tags: Accountability, Adaptability, Bureaucracy, Call-to-action, Energy, Genesys, Plurality, Thesis

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