A new McKinsey Strategy Series, Part I

The title of this entry will lead you to a series of McKinsey articles that provide some pertinent material for this blog. The majority of the focus of these articles is the transition from the technology induced forces that are active in business today. Within this series is a copy of the John Seely Brown and John Hagel III article "Creation Nets". I would point the key reason for this entry is to highlight how the article relates to this blog, as in this quote;

"Change is a constant in today's global business environment: new consumer preferences, innovative attackers, and technological discontinuities can challenge current leaders suddenly. This issue of McKinsey on Strategy examines three ways for companies to embrace the challenge of continual change. One is to reconcile the conflict between executing in the present and adapting to the future. Another is to embrace new knowledge and information trends that can make talented workers more effective and to look outside corporate boundaries for ideas, knowledge, and technology. The third is to counteract the common psychological biases that make executive hang on to failing businesses and products."

I can't think of a better summary of this blogs purpose and role. I have introduced significant change paradigms to the way that oil and gas companies are structured. I have noted that to change the structure requires that systems be built to define and support the new organizations, or as I have noted, SAP is the bureaucracy. And I have attracted significant resistance and as have stated before, and McKinsey is saying in this series, resistance is futile.

I will take each article and break them down into separate entries over the next few days. The first is the results of a Survey McKinsey conducted and their 10 trends.

An executive take on the global business concerns. A McKinsey Survey.

"Macroeconomics Trends"

"1) Centers of Economic activity will shift profoundly not just globally but also regionally."

Clearly China and India are having significant influence in the globalized economy. This trend will continue and bring with it the increase overall demands of energy. Underestimating the overall demand for energy is a fault of the energy producers. Thinking that prices are temporarily high is based more on past events then the globalized economy.

McKinsey notes that these trends are going to be with us for 20 years. The overall changes will be in concert with regional changes that are as dramatic. Noting that Europe and Asia may equalize in their economic size and influence.

"2) Public sector activities will balloon, making productivity gains essential."

This trend notes the demands in health care and other areas of the government will increase in the near future, and that increase has to be met through the enhanced productivity of the public sector. There simply won't be enough people to deal with the demand.

However, this trend is also in play in the oil and gas industry. Retirement of the brain trust will occur in the next 20 years. Methods of sustaining the reserve base requires more active science and engineering. These will have to be done as the fields get older and the targets smaller with less people then what are involved today.

"3) The consumer landscape will change and expand significantly."

Possibly intimating that the west will be the only one market of consumers, when India and China's middle classes continue to expand, the market for all products will be much stronger then the west is accustomed too. The energy sector is also directly affected by the consumer markets.

"Social and Environmental Trends"

"4) Technological connectivity will transform the way people live and interact."

Offices need to be designed to accommodate the new methods of completing work. The ability to conduct business anywhere, anytime is quickly becoming a reality. Telecommuting I think is a bad example of how this change will occur. Contact with a much larger population of workers and their regions will demand that the traditional methods of working needs to be considered.

"5) The battlefield for talent will shift. (Global labor and talent strategies)"

Dove-tailing with the technological connectivity trend, having people scattered in various regions will become commonplace. The ability to conduct operations where ever they are required is augmented by the capability to seek and source talent from remote areas.

"6) The roles and behavior of big business will come under increasingly sharp scrutiny."

Particularly in the energy industry. The Kyoto, CO2 emissions and general nature of the energy industry attracts those that have a strong environmental focus. Big business is also known to hog the lions share of consideration. The competitive and strategic advantages of size may become oriented to the smaller firms.

"7) Demand for natural resources will grow, as will the strain on the environment."

Well stated. McKinsey suggests that energy demand may grow by 50% in the next two decades. For me this certainly puts in perspective the scope and size of the problem in energy. Without energy, there is nothing. It is the lifeblood of an economy. If we intend to continue to develop these energy demands must be met. High energy prices are not a temporary pricing aberration from the conflict in the Middle East.

"Business and Industry Trends"

"8) New global industry structures are emerging."

Due to the proliferation of technologies and regulation like Sarbanes Oxeley, new business models are emerging. Here in Canada the development of private capital and trust conversions have dominated the energy sector. These business models were of limited use as little as 6 years ago.

"9) Management will go from art to science."

This trend is suggested as big businesses savior. The ability to continue on with size requires that the firm employ technologies throughout the organizations. Such that automated decision making replaces the current management structure of organizations. Read the McKinsey article if you have difficulty believing this.

"10) Ubiquitous access to information is changing the economics of knowledge."

This trend indicates to me that the real value in the future is intellectual property. Knowing is one thing, have access and authority to use many of the innovations in the future will be based on a completely different structure in industry. Who knew what and when will be more the deciding factor in creating value. Making licensing and publication more important elements of all businesses, but particularly energy.

I will continue on tomorrow with the next section of this series "The Adaptable Corporation."

technorati tags: Genesys, McKinsey, Trends, Energy, Change

Vaporware vs. Clean Slate

It could be argued that the focus of this blog is a software product that falls within the classification of vaporware. It could be argued this because that's what it is, vaporware. I would put some spin on the classic definition of vaporware and call this a clean slate approach to oil and gas systems. The situation that this "product" is in is difficult to define and therefore difficult to build without the express support of the oil and gas industry. This blog is communicating these concept far and wide and is finding its audience.

I am articulating a vision of what a new approach could do in the systems area. It certainly is vaporware as no group or company has ever approached the joint operating committee as the central organizational focus. How can I, as I am reduced to one individual, do all this work in order to make a viable system for the producers? The clean slate approach has to be communicated in the way that it could and should be built in order to accurately describe the features.

Two points that present the future difficulties I see in oil and gas systems. Partnership accounting and the Genesys technical vision that are the foundation of this solution. All these aspects of software systems have to be addressed and neither SAP, Oracle or IBM have a solution or vision for it.

To be more specific, the perspective of using the joint operating committee brings new and better ways of managing an oil and gas enterprise. From a systems point of view oil and gas has ignored and avoided the joint operating committee as it conflicts with the underlying purpose of the bureaucracy.

This project was originally proposed to the industry in 2004 as an $85 million software development project. As a producer I have to ask, isn't it more appropriate to keep your options open. What if SAP and Oracle continue to provide their current offerings, will those be adequate in the future?

Is there an expectation or belief that the bureaucracy and its use of last centuries technologies can hold a candle to this vision? These technologies and the forces of change in all areas of the economy have to be addressed. Oil prices are up almost 300% reallocating the financial resources to support innovation. Organizations are constrained in their speed and innovativeness due to the bureaucracy and its refusal to accept the joint operating committee as the explicit form of organization.

We have consistently seen successful companies that were able to integrate technology into their strategy and form strong competitive advantages. Companies such as HSBC. Homogenization on SAP is not a competitive strategy. I have now counted 12 calls to action that Harvard, Oxford Analytica, MIT, McKinsey, John Hagel III and John Seely Brown, Secretary Bodman, SEC Chairman Christopher Cox and a variety of others. Add to these calls the demands of the consumers. The time to act and put these software developments into play is now.

technorati tags: Call-to-Action, Vaporware, Technical-Vision, Genesys,

Sir John Browne On MIT Video.

The title to this entry will take you to the MIT video of Sir John Browne, Group Chief Executive BP p.l.c. An excellent speech entitled "The Purpose of Business".

Sir Browne developed his meaning or purpose of business as:

"We are fulfilling our purpose by supplying goods and services at a price people can afford and in a manner in which makes the activity sustainable."

Which is a fundamentally different then we are here to make money. In his speech Sir Browne documents the long lead times in oil and gas operations. Providing an understanding of the time and difficulties it takes to accomplish the development of oil and gas resources. Although it took 15 years to develop these assets, BP probably would not have been able to accomplish what they did in Azerbaijan in North America any easier! The scope and scale of this business is such that the lead times are ridiculously long.

Sir Browne talks at length about the time in which BP went into Azerbaijan in the early 1990's and developed their offshore resources. Offshore resources that probably would have still been untapped if it wasn't for the perseverance of Sir Browne and BP. To invest $15 billion over 15 years without seeing any revenue, to have the investment risked due to the political instability of the region shows the lengths that producers are having to take in order to access the commercial fields. As he notes, the supplies of oil and gas are concentrated in Russia, The Middle East and Africa.

Sir Browne talks about the things that he has to do for the future.

"And perhaps most important of all we need new ideas and knowledge, we need the advances in sciences which we as engineers can apply."

This is 100% consistent with the objectives of this blog and the use of the joint operating committee as the organizational focus. How can it be expected that the bureaucracies will be able to keep up to the demands of the changes in sciences. Layer on the political risks and operational difficulties and one can see the complexity of the business is systemic in all areas of operation. The bureaucracies are doing the job today, but at what speed. Is it fast enough to provide the market with their demands for energy?

The head of one of the largest oil and gas companies suggesting the same objective as discussed here. This has to be considered a call to action, and if we were counting that would make it 12.

technorati tags: Call-to-Action, Genesys, MIT, BP, Browne

A visit to the tarsands.

U.S. Energy Secretary Samuel Bodman was in Calgary over the weekend. After a quick tour of the heavy oil facilities in Fort McMurray Secretary Bodman stated that;

"The U.S. is ready to work with Canada to remove roadblocks facing Alberta's oilsands sector."

and

"Suppliers of oil in the world have really lost control of the market."

Recall MIT highlighted a video of Secretary Bodman that I reviewed here. The question that seems to be answered by Secretary Bodman's visit is that yes the oil sands are a critical part of the U.S. energy security. Declaring the oil sands a "world resource" certainly puts the energy issues into context, and puts their development on a higher priority.

If it was only so easy. The problem comes in the area of infrastructure. There is not the basic necessities to support the current $100 billion in investment being made in Fort McMurray. The mayor of Fort McMurray has stated that the ability to sustain the current pace of development is in jeopardy. There are not enough people, 75,000 in Fort McMurray, to assess as a tax base to begin to even address the current issues, let alone the future oil sands developments. A pretty serious situation for any city to handle.

What we need Secretary Bodman is help with our problems here. There were indications that the kind of help that may be provided from the U.S. was the U.S. based refineries and pipelines be upgraded to handle the oilsands output. First that is not the problem, and secondly Alberta, irrespective of our leaders opinions of the situation, is not a hewer of wood and drawer of water. A few weeks ago I wrote how our leaders had hired a Texas based consultant to review why Alberta was unable to support the development of a $10 billion super refinery. Now is not the time for our leaders to suggest that foreign groups develop the infrastructure necessary for heavy oil development. Invest here in Alberta where the problems exist. Don't move the raw material into the final market, essentially ignoring Alberta as a second class citizen.

The areas that we need help is in the development of the appropriate civic infrastructure in Fort McMurray. What we need is engineering and knowledge on how to build the super refineries, pipelines and associated infrastructure for full development. Lets work together to solve the energy needs of the continent. That is what is possible and that is what we are ready to do with our very good friends, the U.S.

technorati tags: Call-to-Action, Secretary-Bodman, Heavy-Oil, Genesys

"SAP misses forecasts"

In a "surprise" announcement SAP's second quarter results were not as projected. Growth in revenues were down to 8% as opposed to the usual 15 - 17%. Market share was lost to Oracle.

All and all bad news from the number one business software maker. I would point out that they were scheduled to release their results next week, yet chose to slide them in under the door on Friday.

SAP was off in all analysts estimates. This indicating to me that something happened that was unexpectedly. I would like to think that something was companies beginning to turn away from the large software packages towards more natural forms of organization, and much more focused software.

technorati tags: Genesys, SAP, Quarterly

Idiots, a.k.a. Petro Canada shareholders.

What our favorite company is up to is a mystery even to themselves. As a shareholder I will be rabid when on July 27th this company issues its quarterly report. I thought that Petro Canada may surprise the market with an early release yesterday. An early release who's impact would be lessened by the lack of attention over the weekend. This is a particular vile and spineless tactic that only cowards would do. Maybe there is some hope for them yet?

On the topic of a July 27th release date. Does this late of date postpone the bad news to the absolute latest available date? After the full volume of the second quarter reports has died down, then we will hear the extent of the losses of Petro Canada.

When the noise of all the surprise announcements from all the other industries is in full song, Petro Canada will sneak a loosing quarterly under the door. This also on a day before the August long weekend. There is no hope what-so-ever for this firm.

technorati tags: Petro-Canada, Cowards, Genesys, Quarterly

This is where it starts.

Ever wonder how the revolution that I frequently speak of happens? How the people who diligently work in oil and gas begin to turn against their long term employer? How hard working diligent employees begin to percieve things with a jaded eye regarding their commitments to their employers? How they begin to take the opportunities, and apply them for themselves before they even consider their company?

Intel today announced it will layoff 1,000 managers or about 1 percent of its workforce, across the entire company as part of an effort to reduce bureaucracy and costs. Add 1,000 former soldiers against the revolution, now fighting for the revolution. The numbers of people that see and realize that Intel, being a prosperous company, maybe their comfortable days as the bureaucracy are numbered, and they need to do something about it. At least hedge their bets.

This is how and where it begins for the legions of bureaucracies that are plying their trade for the large corporation. Come on in the waters fine.

Technorati Tags: Genesys, Revolution, Lay-offs, Energy

Metcalfe's Law, social networks and Geologists.

The wikipedia entry explaining the law and its origins is available by clicking on the title of this entry. I had also commented on an MIT video that featured Dr. Robert Metcalfe. I find him to be one of the most understated and brilliant individuals of our time. I am writing about Metcalfe's law due to the triggering of something that was said on Fred Stutzman's web log yesterday. I highly recommend reading his entry and the referenced research of Odlyzko and Tilly before continuing. Stutzman is questioning the value of social networks and imputing there is more then just Metcalfe's law in play. I want to take this idea and apply it specifically to a network that should employ the benefits of Metcalfe's law. That is the earth scientists and engineers that are actively employed in the oil and gas industry.

I want to frame the context of my comments in this entry to the scientific domain of an oil and gas earth scientist or engineer. There has been an aberration in the method of these sciences development. Due to the commercial nature of the oil and gas industry these sciences have taken an era of the comical "Top Secret" or "Spy vs. Spy" type of interactions. Much of this stupid behavior and thinking is limited to the policies and procedures that are developed within the firm. This science may have also been restricted in its application due to the types of basin's and zones the firm were operating within. In other words from a very practical point of view the scientists within the firm may have become myopic in their approach due to their veil of secrecy, regions being exploited and geotechnical applications.

I know of one geologist with a master's degree, who over a thirty year career had made some of the most significant discoveries in the entire western sedimentary basin. Commercial fields that may have produced upwards of $10 billion in gas sales. I find it ironic and sad that this individual, who was the president of the firms that made these discoveries, could only point to one mention of any of his scientific discoveries. And this was in the academic field as a result of his master's thesis. What the %&*# has happened to the geological, and geophysical sciences? Has it become a secret backroom corporate holly grail? Where only certain people are ever exposed to the knowledge that underlies the firm? (Monty Python coconuts seems somewhat appropriate here.) Why haven't we seen many of the papers and thinking that is the underlying value of the entire industry? Certainly the individuals who have been able to apply the science have been able to attain significant monetary success, but they are not credited with their theories and the developments and benefits that they brought to the sciences. And far worse these ideas remain secrets that are locked away where no one else can benefit from them! Applying Metcalfe's law this is a network of 1. Which derives the benefit of 1 to the power of 1. Sad ridiculous and maybe a crime. "What I know is what I know and I will not let anyone know what I know because then they will take it from me?" This is pathetic thinking for an individual that has been educated in the scientific disciplines. It is also pathetic that this is not being actively addressed and corrected today by some new thinking individual who publishes their thoughts in a blog. Publishing is the only manner of securing your intellectual property. Use technorati to document what you know and when you know it. And let the rest of the world benefit and build from the ideas.

Off the soap box now and talking again about the network effect of Metcalfe's law. Can the earth sciences and engineering disciplines benefit from some thinking that is logarithmically better in its speed and quality. What if workers in oil and gas openly published their earth science theories and thoughts. Could we then move the entire industry to a fundamentally new basis of value. Could these scientists have the benefit of knowing that their thoughts were unique and valuable to society, and reap the monetary benefits. To not publish is to deny what is yours to give.

Somebody somewhere has to start a social network for the earth scientists to start thinking together. (I can only assume that the oil and gas companies are going to be unhappy with me again.)

Technorati Tags: Copyright, Metcalfe's-Law, Innovation, Energy

A new security risk?

This is a warning to oil and gas companies regarding a new and significant security risk. Normally I don't concern myself with these, however, the following is the most prolific risk in technology today.

Pod slurping has been known to be a reasonable risk since the beginning of the iPod craze. Podslurping involves high speed copying of hard drives onto an iPod at an unauthorized location. The difficulty is having physical access to connect an iPod device to the network and then copy the disk images to the iPod for later review. With these iPod's being upwards of 60 gigabytes, significant volumes of data can be taken in less then 2 - 3 minutes. That is until now.

If as Microsoft has claimed, their new iPod killer will be wireless, then the physical access is not required. A visitor to your office may be able to access the data on hard drives wirelessly and maybe not even require physical access. I believe this may be a significant risk.

The only remedy is to encrypt literally everything so that the information is useless in the wrong hands. This can be done by ensuring all;

• data is stored in encrypted form.
• network connections are on a virtual private network.
• wireless connections are encrypted, and not broadcast.

Trust Microsoft to introduce the device that brings the greatest risk to data integrity. Which brings up the other risk. The ability to load programs and other data on to a harddrive is also a concern. The ability to store something in non-encrypted form would still be a threat if it were a script or, other compromising data.

When a company of size considers how many hard drives are accessible in this fashion it gives one the willies. Each computer is essentially a potential entry point when one considers that a wireless USB port can be augmented with a 802.11 b/g or Bluetooth connection in less then 10 seconds. Permitting anyone to create a new wireless network for their own use. However, it would be fairly easy to see someone using a computer in an unauthorized fashion, the iPod could be actively downloading information during a regular meeting. The network computer and service oriented architectures have never been more justified.

Now based on Microsoft's release schedule, their iPod killer won't be out until 2015. However, Apple won't sit idly by and let Microsoft introduce any innovation that isn't on their platform first. If there is to be a wireless iPod it could be seen as early as this years Apple World Wide Developer Conference in August. The time frame therefore to encrypt one's data is now, with very little time to do it.

Technorati Tags: iPod, Security, Innovation, Energy

Accidental innovation.

Harvard Business School has published an interesting interview in their Working Knowledge for Business Leaders series. Click on the title of this entry for the article. There are a number of interesting comments in the article and I am going to highlight two here, and then discuss the accidental nature of how I came upon using the joint operating committee as the key organizational paradigm for innovation in oil and gas.

"We have to be careful of these stories, in part because they make such good stories. Some scholars are skeptical of them, but the sheer number of them is interesting. And many scientists, like Fleming, talk very explicitly about the role of accident in their work. Some even argue that the orderly way people sometimes describe processes of discovery and invention, of the progress of science, is nothing less than fraud."

and

"Q: Is there a way innovators can encourage good accidents? In other words, is there anything we can control to foster this process?"

"A: Great question. Artists think they develop a talent for causing good accidents. Equally or perhaps even more important, they believe they cultivate an ability to notice the value in interesting accidents. This is a non-trivial capability. Pasteur called it the "prepared mind." There's an interesting analogy to evolutionary models of creativity here. In 1960, a guy named [Donald] Campbell proposed that we think of creativity as "Random variation + Selective Retention." That is, we need two processes, one to generate things we can't think of in advance, and another to figure out which of the things we generate are valuable and are worth keeping and building upon. In science, the arts, and other creative activities, the ability to know what to throw away and what to keep seems to arise from experience, from study, from command of fundamentals, and interestingly from being a bit skeptical of preset intentions and plans that commit you too firmly to the endpoints you can envision in advance. Knowing too clearly where you are going, focusing too hard on a predefined objective, can cause you to miss value that might lie in a different direction."

"In business, there's a saying that goes "if you don't know where you're going, any map will do." You can almost always get managers to nod in agreement with this suggestion that you might as well not start something if you don't have its end objective well defined. Working without a clear definition of your objective is considered wasteful, inefficient. But if you are trying to get outside what you can anticipate and see in advance, if you are going after the truly new and valuable, this way of thinking can be a problem. This is one truth about innovation that artists seem to understand a lot better than managers."

"Actually, though, I would not really label this "accidental innovation." The innovation itself can't really be said to be "accidental," even though it involves accident. It takes a considerable capability to see the value in an accident, and to build upon it to create even more value."

It seems like forever since I have been pushing this concept of the joint operating committee. If this method of organization for oil and gas firms has the perceived effect of what I think it does, then I certainly am not wasting my time by pushing it. I recall the early part of this century as a time when I was extremely busy. I was working as a CFO for a small oil and gas firm, I was taking courses for my MBA and I was haunted by the devastation that this software company had exercised on me. They were the worst of times, they were the best of times.

One of the things that bothered me about the software business was that I was more or less forced out by a number of mistakes on my behalf. All the value that had been created was dying on the vine. I felt the competitive advantages that were built up were fading quickly as others caught up with better technology and / or thinking.

In 2003 I can recall that I was thinking how could I strategically reclaim the higher ground and get back into the business on a full time basis. This was a raging thought throughout the three years I was studying. I then was required to pick a topic for my thesis. I thought that it would help me to combine my thesis and my intellectual property, together as one project to save time. The time pressures of my thesis came into play and I was desperately wanting to establish more intellectual property. This was based on my own realization that intellectual property was the only sustainable competitive advantage for any business, but particularly the software business.

I was therefore thinking through the entire process of the oil and gas industry and trying to analyze the key piece of data and information that the industry could be made to be more innovative. The ability to become innovative was more or less going to be a revision of the organizational structure, and I can remember vividly it was December and I was parking my car when it just hit me. The joint operating committee needs to be recognized as the key point of the organization. It is the point where most of the conflict and contradiction flowed from. The oil and gas hierarchies have been more or less in direct conflict with the committee for possibly 100 years. The efficiencies of the hierarchy in the large organization were diminishing, the technologies were moving to provide alternatives and the joint operating committee was sitting there as ripe fruit ready to be picked and put into play in the industry.

As soon as I thought of this it was like everything that I was doing was solved. I could build better software, I could increase the organizational capacity of oil and gas producer and I could finish my thesis with a killer topic. All my Christmas' had come at once.

Thinking the idea would sell I published the document to only realize afterwards that no one was going to support the idea. The bureaucracies I criticized and declared redundant, owned the budget process. And said bureaucracies were quick to show me how little they thought of the idea and the rest as they say is history. Being somewhat ostracized from the industry is somewhat refreshing I have to say. The time that I have been given has provided me with lots of opportunity to put more meat on these concepts and acquire more intellectual property through the publication of this blog. The pay is nothing, however, I can exist for as long as I need to finish off the concepts that I am researching and publishing. Besides I can't think of anything I like more then writing this blog. It is challenging and rewarding, the two things that I need the most.

Back to the Harvard article was this the result of a "prepared mind," yes most definitely. With 25 years experience in the industry, a masters level education, competitive stimulation, revolutionary technological opportunities were all factors. As the article also states, knowing that this was the point to push I think is also a key point. I could have easily justified letting this slip away under the basis that, it's too difficult, it would never sell or any other excuse. The last point that the article notes of interest to me is that I had a clear objective in mind, how to increase the innovative performance of an oil and gas producer. I was looking for some key attribute in this area and this remains the overall objective for now and for the long term.

But maybe most importantly, was I lucky? Yes, unquestionably. Serendipity is a good thing.

Technorati Tags: Genesys, Joint-Operating-Committee, Innovation, Energy