What I would do.

In the instance of having some companies with qualified opinions on their financial statements. If this project was proceeding as it should, I would have struck a committee of the large accounting firms to discuss what would be necessary to ensure that the companies had unqualified opinions next year. And then set out to do just that.

The source of this problem is the sale of Qbyte last year by IBM. The new vendors gave notice that it would not support Qbyte after 2009, and therefore has put the energy companies in a situation where on a go forward basis they have to qualify their opinions in the financial statements.

Why did IBM sell? Their frustration with the industry to do anything with their systems on a go forward basis was discussed many times in the past. What were they to do? I can't blame them in the least.

The industry reaps what it sows.

Technorati Tags: Genesys, Team-Failures, Call-to-Action, Alternative

Annual Report Season

Canadian Natural Resources Ltd have filed their 2006 annual report. Within its financial statements there is a small qualification of managements opinion on internal controls. But first lets go back to 2005 to see what they wrote.

The accompanying consolidated financial statements and all information in the annual report are the responsibility of management. The consolidated financial statements have been prepared by management in accordance with the accounting policies in the notes to the consolidated financial statements. Where necessary, management has made informed judgements and estimates in accounting for transactions that were not complete at the balance sheet date. In the opinion of management, the financial statements have been prepared in accordance with Canadian generally accepted accounting principles appropriate in the circumstances. The financial information elsewhere in the annual report has been reviewed to ensure consistency with that in the consolidated financial statements. Management maintains appropriate systems of internal control. Policies and procedures are designed to give reasonable assurance that transactions are appropriately authorized, assets are safeguarded from loss or unauthorized use and financial records are properly maintained to provide reliable information for preparation of financial statements.

PricewaterhouseCoopers LLP, an independent firm of Chartered Accountants, has been engaged, as approved by a vote of the shareholders at the Company’s most recent Annual General Meeting, to examine the consolidated financial statements in accordance with generally accepted auditing standards in Canada and provide an independent professional opinion. Their report is presented with the consolidated financial statements. The Board of Directors (the “Board”) is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal controls. The Board exercises this responsibility through the Audit Committee of the Board. This committee, which is comprised of nonmanagement directors, meets with management and the external auditors to satisfy itself that management responsibilities are properly discharged and to review the consolidated financial statements before they are presented to the Board for approval. The consolidated financial statements have been approved by the Board on the recommendation of the Audit Committee.

And for 2006

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 15(d)-15(f) under the United States Securities Exchange Act of 1934, as amended. Management, together with the Company’s President and Chief Operating Officer and the Company’s Chief Financial Officer and Senior Vice-President, Finance, performed an assessment of the Company’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management, together with the Company’s President and Chief Operating Officer and the Company’s Chief Financial Officer and Senior Vice-President, Finance, has concluded that the Company’s internal control over financial reporting is effective as at December 31, 2006. Management recognizes that all internal control systems have inherent limitations. Because of its inherent limitations,internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as at December 31, 2006, has been audited by PricewaterhouseCoopers LLP, independent auditors, as stated in their report presented with the audited consolidated financial statements.

Well who would have thought, sounds like a systems related argument that has been discussed here many times. I'll let you know of whom's head I see rolling down 5th Avenue first.

Technorati Tags: Genesys, Governance, Call-to-Action, Failure

Technology, Entrepreneurship, and Inequality

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

David Ulph UK government, London, UK

February 2003

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

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

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

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

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

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

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

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

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

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

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

Conclusions

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

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

We've been Haacked!

And I do like it. Phil Haack runs a blog that

"attempts to infuse technology and software development with humor and a pragmatic eye... Attempts."

Phil read one of my recent posts and commented on it in his blog.

I certainly would welcome Phil and his community to have a look at this early stage project. The scope is large and therefore, "one day", will have ample amounts of paid developers working on it. No time like the present for a little introduction, and self-promotion, I think.

Technorati Tags: Genesys, Development, Open-Source, Software

Silence Fails, Part B

Continuing on with Silence Fails and the impact that the documents 5 crucial problems have raised.

Starting with the Conclusion on page 18.

"Although Silence Fails focuses on important findings that can predict and explain failure, the most important implication of the study is that potential leaders have to influence success." pp. 18

More then anything the energy industry needs this project to be a success. The time, money and effort that needs to be channeled through this project is not something that can fail. I believe fundamentally the ability for the industry to increase its throughput capacity requires fundamental revolutionary change in the manner that people organize themselves and conduct their work. The time for this to start is not after this software is built, but now, starting today the user needs to be the influence and drive to make this real and successful. Now that this paper Silence Fails has enabled me to dispatch the wrong approach, its time to start planning how the process gets under way. I think Google is going to be announcing the integration of JotSpot into Google Docs & Spreadsheets. This will enable me to put up all the blogs content on that Wiki and have any and all people that this project appeals to to begin posting their content. From there the users will determine what's in and what's out and what should be there. The project scope, the budget etc.

First lets continue on with the review.

Getting People to Speak Up Well.

This is something that I can see is important and I think I have been able to maintain the scope of the project as a result. Many times I have been approached with alternative methods of dealing with this project. A compromise here and a compromise there and the project is on a go forward basis. This hasn't happened because the time and effort necessary for success is not there. You also can not compromise on such a large and important project as the basis of the first step. If it is necessary to say no, I apparently have said so. The paper deals with this specifically;

"Across the problem areas, about half of leaders make some attempt to speak up. But most are ineffective. Some speak up but they water down their concerns, so the issues are never fully aired. Some speak up but do so in a way that provokes defensiveness from others. And a handful - are able to share their full concerns by the end of the conversation, feel their views are understood and respected."

and

"The study also shows that while the skill of the initiator is a key ingredient in ensuring these crucial conversations are held well, the receptiveness of the other party is similarly important."

"Unless and until leaders take extraordinary measure to ensure their environment is conducive to holding crucial conversations, a number of issues will remain unaddressed, invisible, and fatal."

The authors then note a number of key steps to make the changes that are necessary for this project.

Develop a Business Case for Change:

• Begin by making the problem visible. Track and publish data about project successes and failures.
• Distribute Silence Fails to generate discussion about the root cause of current under performance.
• Engage senior leaders in a "listening campaign" where they lead structured focus groups to validate whether these crucial problems affect current results.

Well I have been doing this with the blog but that is not enough. As soon as I get a Wiki up and operational it will enable more voices to express what they want in terms of systems etc. I am also hopeful that I can find the kind of software that prepares and manages the Java Community Process. Have a look it's ideal for the purposes of this project.

Measure Behaviors

What gets measured gets done. The authors have prepared a Silence Fails Assessment to help measure and monitor the conversations that need to be carried out. The scoring of this assessment will help the project leaders assess where the conversation is missing and initiate steps to get it back on track.

Invest in Skills

The two sponsoring firms in addition to preparing the report and assessment, have prepared training materials in this area for project managers. This is of course how they make their money. The training looks to be very thorough and is designed to teach the project managers how to carry out these difficult conversations. I believe these programs have value and will explore them when we get our funding. Until that time I will have to muddle through with the material that has been published by the two sponsors The Concours Groups and VitalSmarts. In addition, the program states;

Hold Senior Management Accountable

Ultimately this project will survive and endure the difficult road ahead through the determination of a few strong CEO's in the marketplace. Their commitment to making this project successful can not wane or fade.

"Make leaders the teachers. People will change their behavior more rapidly if leaders deliver the training than if staff trainers or outside consultants do so. When leaders teach, the speed of change can be two or three time greater than when those who aren't as credible and connected in the organization lead instruction."

Make Heroes of Early Adopters

In order for the candid comments and conversations to be carried out The early adopters of these principles, the ones who stand up and take a risk and raise the conversation should be identified publicly with the recognition and support of the project leadership.

"Be sure to send a clear and public message that these conversations aren't just important, they're crucial and those who raise them are highly valued."

Technorati Tags: Genesys, Silence-Fails, AWOL-Sponsors, Call-to-Action, Team-Failures, Project-Chicken, Skirting, Fact-Free-Planning

Silence Fails, Part A

The title of this entry will take you to a website that will enable you to download a .pdf entitled Silence Fails.

In the process of determining what the proposal for the targeted 135 producers (T135) will be. It is necessary to review the project completely. The scope has changed slightly. The target market is different and I think they need a fundamentally different approach. Particularly from the point of view of the knowledge, ideas and undertakings discussed here in this blog. These ideas and the basic premise that the Joint Operating Committee (JOC) is the key organizational construct for oil and gas. Unless they stumbled onto the blog they would have heard very little about this project. Specifically the May 2004 research report was not targeted at them. Times have changed and the need to start over again is the approach that has to be made to them. Therefore I have revised the first years budget requirements at $375,000.00 and will be looking for a number of T135 producers fund this first year. The purpose of these funds has changed radically as well. As opposed to doing any construction of the project deliverables I want to create a number of "conversations" with the industry. This will be done by continuing on with reviewing the pertinent academic research as I have been on the innovation in oil and gas blog. This is the most effective area of where I can spend the next year. The addition of a Wiki to deal with the project scope, budget, deliverables and associated material gets developed. These need to be determined through the population of users that this project is targeted at. They need to be involved in these determinations. This change in tactical approach is as a result of the prompting of the "Silence Fails" research report that I am in receipt of.

Silence Fails is the name of a research report that has been published by it two research sponsors VitalSmarts and The Concours Group. These companies are described as follows.

VitalSmarts
"An innovator in corporate training and organizational performance, VitalSmarts helps teams and organizations achieve the results they care about most. With award-winning training products based on more than 25 years of ongoing research, VitalSmarts has helped more than 300 of the Fortune 500 realize significant results using a proven method for driving rapid, sustainable, and measurable change in behaviors. VitalSmarts has been ranked twice by Inc. magazine as one of the fastest growing companies in America and has trained more than 500,000 people worldwide"

The Concours Group
"The Concours Group is a new breed of professional services firm, supporting senior executives through the blend of leading-edge intellectual capital and pragmatic business applications. The firm works with more than 300 of the Global 1,000 firms, helping leaders turn human and technological potential into business value. The Concours Institute is the research and education arm of The Concours Group. Concours research discovers and develops future best practices in business, technology, and human capital; its education articulates them and motivates their adoption; and its innovative senior-person Advisory Services enables clients to implement them quickly and achieve business results."

The sponsors research involved approaching a variety of companies with more then 2,200 projects ranging from $10,000 to billion dollar organizational restructuring efforts. It sounds like these research projects are almost directly in-line within the scope of what this project entails, organizational change with information technology.

Silence Fails; The Five Crucial Conversations for Flawless Execution.

The project focused on five conversations that should occur within the project, however rarely do. These five conversations, or rather their lack of them, were determined to be the reason for "91% of all large scale corporate initiatives fail". These five conversations make it clear to me that I was on the wrong path. Expecting that a top heavy project would be able to lead the Users to the ultimate destination of better systems is clearly the result of the lack of the conversations that need to be done. Going through these five conversations also show me how it could be done with less risk, greater accountability and potential success.

The five conversations are simply conversations that should be carried out, but aren't for a variety of human resource and psychological reasons. They are:

• "Fact Free Planning"
• "A project is set up to fail when deadlines or resource limits are set with no consideration for reality."
• "Away With Out Leave (AWOL) Sponsors"
• "A sponsor doesn't provide leadership, political clout, time, or energy to see a project through to completion."
• "Skirting"
• "People work around the priority-setting process."
• "Project Chicken"
• "Team leaders and members don't admit when there are problems with a project but instead wait for someone else to speak up."
• "Team Failures"
• "Team members are unwilling or unable to support the project."

This listing does not provide a lot of comfort that this would be an appropriate direction to follow. But reading the entire report gives a perspective that transcends just the listing of the necessary conversations. Reviewing the report provides an understanding of why projects fail implicitly. Anyone who has worked on projects will understand why these conversations will have an effect on the outcome of projects. So lets look at each conversation and attempt to capture what the research report is providing.

The Silent Crisis

To mitigate failure, management has turned to hedge against failure by implementing
"Formal systems. Over the past twenty years, project professionals and management experts have focused on improving the formal systems related to program governance, project management, and project related technologies." pp. 3
"This study... demonstrates that project leaders can substantially improve their organizations ability to execute on high-stakes projects and initiatives by breaking a code of silence on five astoundingly common yet largely un-discussed and ignored problems that contribute significantly to almost all project failures." pp. 3

Key Findings

"When one or more of these problems is not controlled - or not confronted well - it festers, sets off workarounds, and produces politics." pp. 5

One of the key findings is that when four out of five of the projects fail when one or more of these conversations is missing. The good news is that one in five projects succeeds because the conversation was used by the project leaders or the project was turned around based on introducing the conversations. The authors of this report go on to note;

• "Does it affect project success when project leaders speak up effectively?"
• "Can others be taught to speak up more skillfully with similar results?"

"The resounding answer to each of these questions is yes". pp. 5
"Senior leaders can predict and prevent the failure of high-stakes business initiatives by creating a culture where the five conversations are held quickly and effectively. Silence Fails Also provides insights and recommendation on how senior leaders can develop a business case for change, measure behaviors, invest in skills, hold senior management accountable, and make heroes of early adopters." pp. 6

Crucial Problem # 1:
Fact Free Planning
"A project is set up to fail when deadlines or resource limits are set with no consideration for reality." pp. 8

To this I plead guilty. Using a top down approach as I did, didn't feel right. Yet this un-asked question was never raised outside of the comment that the total amount that was deemed necessary was "sticker shock" the real and necessary conversation about the resources and the sources of project funding did not occur. Therefore it is necessary to start this conversation and have the input from all stakeholders and users detail a plan and budget that can instill the accountability and ownership to the agreed to deliverables. Immediately I can see one source of this problem being the users. In retrospect I was expecting the users to provide their involvement and participation out of the greater good of their employer or in the case of independent workers their time. This is wrong and the developers and users should be paid equally to provide the long term motivation and sustenance of the project. This will form the basis of the conversation as we go forward. It should also be understood that the resources to carry out this conversation are not available. Participation in this next / first year should provide some direction with respect to who the leaders and resources are in the user community so that when the project does have its sponsors their participation can be recognized. The report goes on to say.

"Fact free planning reflects bad planning behaviors at every level. When project leaders realize these practices are taking place, they must be willing and able to call the bluff. If they avoid this crucial conversation and either commit to something they know can't happen or fake their way to success, they set themselves and their projects up to fail."

"Similarly, executives who avoid discussing their doubts about an estimates validity or the team's competence instead use their power in a way that generates political rather than valid agreements. Then when failures follow, their doubts about the team are confirmed, and they feel justified in using more fact-free planning to re-establish their sense of control."

The only way out of this vicious cycle is for project leaders and executives to candidly and effectively express their suspicions, doubts, and data. While these crucial conversations aren't easy, they are the only path to rational commitments."

How common are these problems? Eighty-Five percent of project leaders are faced with "fact-free planning"."

Crucial Problem # 2
AWOL Sponsors
"A sponsor doesn't provide leadership, political clout, time, or energy to see a project through to completion."

Not something that I want to experience. This is a long life project and to have sponsors disappear is not what I want for this project. I don't even know of whom the project sponsor would be. Since this is an industry wide initiative the need to have several committed to the success would be necessary, and therefore possibly the CEO's. This conversation therefore needs to be undertaken in the next year with the funding being sourced.

"Project Sponsors are responsible to provide leadership and political support. And they frequently don't. When the sponsor is AWOL, the project team is stranded and exposed. They're sent off to accomplish a task and don't have the firepower needed to implement the project. For example, key leaders whose help or resources are needed to enable the project may not come through, and the sponsor who has the organizational muscle to hold them accountable fails to do so." pp. 11

Crucial Problem # 3
Skirting
"People work around the priority-setting process."

"Powerful stakeholders and senior leaders often skirt the formal decision making, planning, and prioritization processes. They need what they need, and they don't want to be burdened with practical considerations. So they work around the process. The results are often outrageous overcommitment, disappointment, and burnout. Projects get approved for which there are no resources, scope creep bloats approved projects far beyond the resources originally budgeted, and team members deliver a succession of disappointing results from battered morale."

Yikes this one hurts just thinking about the possibility. The authors break this category down even further into the various culprits that cause skirting.

• New projects added without revisiting priorities. 59%
• Too many projects on my plate. 53%
• Politics determine highest priorities. 52%
• Too many high priority on my plate. 52%
• Low priority projects become emergencies. 49%
• Some projects should be cancelled but are not. 33%

Crucial Problems # 4
Project Chicken
Team Leaders and members don't admit when there are problems with a project but instead wait for someone else to speak up first.

"When project leaders play project chicken, the status and review process becomes a joke. The team loses opportunities to gracefully respond to problems by revising goal, shifting resources, reorganizing plans, and more. Instead, the project hurtles forward on a collision course with failure while everyone watches - nervous but silent."

As with all of these crucial problems, the issue resonates with the experience and understanding of why some things did not work.

Crucial Problem # 5
Team Failures
Team Members are unwilling or unable to support the project.

Firstly the change I mentioned in Crucial Problem # 1 where users will be compensated for their efforts as well as the developers will help mitigate this problems exposure. Specific problems include Team members;

• Don't have the right skill set for the projects. 55%
• Don't put enough time or energy into the project. 51%
• Not raising issues when they are met. 48%
• Not making a real contribution. 46%
• Don't attend meetings or respond to requests. 43%
• Are difficult to work with. 42%
• Are remote or otherwise not participating fully. 23%

In terms of expecting the user to contribute to this project on a volunteer basis is foolhardy.

This glaring problem of the users not getting compensated was not seen earlier by me, but thankfully has been rectified. How many more of these types of problems are lurking in this project, to be honest most if not all these are resident within the project. Effectively with this posting I am setting this project back to day one for a re-start. The need to have the resources be represented in the necessary discussion's is obvious for this projects success. As I indicated I will continue to conduct the research that I was doing, the review of the LEM working paper series, and the authors that are on topic with the efforts in this new community. Secondly, with the budget for next year, I will set up and maintain a Wiki and run the Collabnet software so that the community process is completed in the time frame that is requires. I would suggest that this may involve more then one year to establish and conduct these conversations. The key point is, the time - line needs to be established in these conversations. What I can do to help this process is contained within the second entry of this paper I will publish on Wednesday.

Technorati Tags: Genesys, Fact-Free-Planning, AWOL-Sponsors, Skirting, Project-Chicken, Team-Failures, Silence-Fails

Replicating Organizational Knowledge: Principles or Templates?

Professor Sidney G. Winter
Professor Charles Baden - Fuller

Another paper by Professor Winter, this one co-authored with Professor Charles Baden - Fuller. It poses an interesting question with respect to the activities of the oil and gas industry. Should the homogenization of the administration occur? Will it lead to a lack of competitiveness in the industry? I assert that the producers competitive advantages are sought by their strategic land position, their management and the organizations ability to find and produce commercial quantities of oil and gas. The administrative burden has been codified to a large extent by the various associations and non-profit organizations that have standardized the data model (PPDM) defined the operating requirements (CAPL) asserted the acceptable accounting requirements (COPAS and PASC). A firms ability to differentiate their operations on the basis of the administrative requirements would be an abject failure at the word go. The industry has progressed very far in terms of the acceptable behaviours in the industry. The secret is to have a solid enough inventory of land, seismic and scientists pushing the edge of their sciences. Administration is an after thought, not a competitive factor.

This brings up the issue of how is the homogenization of the oil and gas industries going to occur. Simply its not, the administration will become less of a burden and the speed and innovation of the industry will no longer be organizationally constrained. Specifically, how are the optimum methods replicated from task to task, person to person and producer to producer? This is the topic of Professor Winter's et al paper. Using the two methods of "Principles" and "Templates" the authors come up with some surprisingly strong recommendations.

Abstract

"We address the challenges of providing operational measure for successful replication, and for comparing the efficacy of principles and templates. By using two longitudinal case studies of replication across the units of two multi-unity organizations, we support the central claim that in certain circumstances replication by principles can be as speedy and cost effective as replication with templates, and deliver results of comparable quality. The principle contingencies affecting the relative performance of the two methods are identified. We also point out that replication efforts can be a source or incubator, as well as an application area, for dynamic capabilities in an organization. We briefly suggest what the results may mean for theories of knowledge - based competition." pp. 2

Of the case examples one firm is in the retail distribution of oil products, with the other case example of the hotel chain in France, do not provide any direct relevance from an industry stand point. However from a large organizational point of view the case examples are effective in displaying the results of this study and their applicability to any and all organizations. The one key difference from my point of view is the capital intensive nature of the energy industry makes these recommendations more valid as the exposure to loss is higher then in a traditional labor intensive business. The bigger issue is the need and opportunity to have the standardized processes codified from an industry wide point of view. How these are replicated starts with a few quotations from Winter et al.

"In replication, an organization is intentionally reproducing or diffusing the success it has itself enjoyed in some limited setting or locale." pp. 3

"The value of replication is therefore the ability to diffuse faster than rivals can either imitate or innovate." pp. 3

"This paper seeks to clarify our understanding of the replication of organizational knowledge by introducing a distinction that has been little noticed. Our central thesis is that most organizations adopt some combination of two strategies or approaches, which we call "Principles" and "Templates". The guidance provided by "Principals" has the flavor "Let me explain why this works and the reasons why I do it is this and then try to make it work yourself - I will comment on any mistakes I see". The "Templates" approach is suggested by "Watch very carefully how I do this; then copy what I do and try hard to copy it exactly - but don't ask me why." The word why is clearly central to this distinction, being at the core of one approach while often considered a pitfall in the other." pp. 4

"Both approaches to replication can be supported by codification - by which we mean a "how to" manual recorded in the symbols of some appropriate, possibly technical, language." pp. 4

"Hence, it is rarely if ever the case that replication can be accomplished merely by supplying the manual to the recipient." pp. 5

The first question we should ask is how much tacit knowledge can be captured and codified in software? The answer to this question may vary depending on your IT capabilities and vision, I see significant benefit from the codification of the knowledge. For example, one of the most clarifying aspects of how the administrative issues are absorbed is with the use of schematics. Understanding of how the oil and gas industry operates is reflected in the physical makeup and physical flows of oil and gas. In terms of codification of the understanding of the "principles" is to have a schematic overlay appear in Google Maps. If that was possible with a dedicated industry related software developer, these schematics could populate the overlay with production flows, it becomes evident to the user how the energy related issues will play out. This is also as a result of the standardization of reporting processes primarily dictated to by the Alberta Government for its royalties, and the Energy Utilities Board here in Canada.

"In what follows, we further develop the contrast between the two approaches and seek to understand the circumstance in which each might be superior. The templates approach is understood, believed in and widely relied upon by managers in retailing and other sectors." pp. 5

"After a digression into history, the paper starts by exploring what is meant by replication, templates, and principles. It then proves the challenging problem of how we can determine whether replication has actually occurred. This sets the stage for the two in-depth case studies, which illustrate how replication by principles works; we finally discuss the factors affecting its success in the cases and in general." pp. 5

"... this opening section is a short digression into the field of economic history to show that using principles to recreate an existing success has a long documented history." pp. 6

"For example, he noted that Ford's moving production line was almost certainly "borrowed" from understanding the causal logic's behind the flour milling and other production line based industries whose "principles" were documented in contemporary magazines." pp. 6

"Hounshell points out that Colt did not gather directly the details of the mass production systems that had been developed to a fine art by the Federal armories at Harper's Ferry. Rather, inspired by their results, Colt set about designing a factory that use the spirit or principles of mass-production he had seen documented in contemporary accounts. Essentially, Colt recreated the instrumental logic for the American System without the necessity of observing the template. The Colt and Takaato experiences suggest that complex knowledge can be replicated without templates when the principles are evident and the copyist has good background knowledge and strong motivation." pp. 6

With these passages we can clearly see that the principles method of replication has been a key component of the success that business has achieved in the past 100 years. The traditional competitive forces creates the need to have some changes introduced to remain competitive. Although it may be argued that in today's market the competitive forces are diminished and the need to achieve an optimum operating focus is now driven through the lack of resources, and excessive demand, the overall objective remains the same. This objective of operating efficiency is the key motivation behind the replication across the energy industry.

What is replication?

"On the face of it, there does not seem to be much doubt that replication happens. The airport concourses and shopping malls of the great cities of the world provide ample (some would say depressing) testimony to the extent of replication activity in the arena of retailing and we know that it also occurs in other sectors. But the fact that the phenomenon is familiar belies the considerable challenge involved in defining it precisely. Indeed, the great philosopher Karl Popper warns us that defining replication requires judgement not absolutes." pp. 6

When we consider a software application that has the capability to replicate the knowledge of the users in most situations. We begin to rely on the knowledge of the user and an intuitive interface to enable the user to achieve what their objectives are. The software interface becomes a key component of achieving the work of the user and the method that the users attention is directed. Competing for the attention of the user is something that we have discussed in this blog before and is aggregated on the label attention economy. We have also discussed the division of labor and how Adam Smith was able to show that re-organizing around new divisions of labor enables economic growth. I have asserted the further division of labor will need to occur in order for the energy industry to expand its capacity. How the work is coordinated between those people and processes is the job of the the software application that I am discussing here. The interface is the manner in which the tasks and information are presented to the user in order for them to apply (replicate) what they know and understand.

"Replication of practices and routines cannot occur in an absolutely strict sense since the people in the organization change (whether on account of time or space) and the environment surrounding the organization is never entirely constant." pp. 7

"More precisely, we are concerned centrally with re-using knowledge of ways of doing things, i.e., it is essentially a matter of replication of organizational routines. Routines that respond effectively to differences in environment circumstance will produce different observable manifestations in different environment, even when replicated precisely." pp. 7

"Our conclusion on these puzzling question is that both process and outcome must matter in a fruitful definition of success in replication. Replication is successful when broadly equivalent outcomes are realized by similar means. On the outcome side, a positive return on the specific investment in replication sets a bare-minimum standard for "equivalence"." pp. 8

"Replication is about leveraging knowledge and is successful when "broadly equivalent" outcomes are realized by "similar means". In a specific context the words "broadly equivalent" acquire relatively precise meaning that are dependent on the replication intent. Likewise the works "by similar means" have more precise meanings that depend on the knowledge that is being replicated." pp. 8

I am going to boldly suggest that this is the primary reason that Users have been found to be critical to the success in the development of software. What has been described to this point is a massively difficult process to comprehend. The comprehension and implementation have to be defined and supported by the users. The iterative nature of the development triggers what the users want in the final product, and in some cases don't see what it is they are exactly after until the process is complete. To state that this process is ever complete is a bold assertion that fails on the belief and understanding that there is always a better way when dealing with the systemic innovation that is being set out to be achieved in this blog and in this software development project.

"We can learn much from the philosophers of science that have struggled with these questions. In psychology, according to Friedman, replication is paradoxical and difficult to define in absolute terms but none-the-less very clear in practice (Friedman, 1967: 149) In physics, Collins compares different kinds of replication including expert systems and comes to precisely the same conclusions." pp. 9

"So it is appropriate to recognize that in the business environment as in science, replication tests are matters of pragmatic truth, in which the understanding achieved in specific contexts carries a great deal of weight." pp. 9

What is software, Principle / Template. Professor Winter indicated that the two methods discussed in this paper were polar extremes. And it is with these two extremes we see the means at which we can replicate the knowledge of the industry to the user of the software that will be built here. The Principle method lets those that are experienced and understanding of the process to immediately run with it. Whereas the template can also help those that are less experienced in an oil and gas be productive and contribute as they learn. A hybrid approach is probably to a large extent necessary as we are dealing with something form a template point of view that is easy to implement and reduce to the lowest common denominator. But ideally that is not what we are after. The objective needs to be one that is supportive of the people who are innovating and expanding the knowledge and productive capacity of their firms and JOC's. In other words the user must be involved.

The point of the user is something that is lost on the SAP's and Oracle's. Their ability to deal with the energy industries needs have been atrocious. Their solutions are a point of view of understanding what best practice is, and implementing that concept within the software's interface. This is why the user is generally reduced to a cog in the wheel of the SAP / Oracle system. They are unable to represent what SAP defines as best practice to the activities of the firm. The JOC is not recognized or supported in these other applications and the ability therefore for the user to operate the system is constrained immediately. On these points Winter et al are clear, and I will leave it to them to explain their point of view in these following references.

How to Replicate

"What are the components of knowledge embedded in organizational processes? How are these components constructed and how do they get replicated? All methods seem to involve three key components: templates, principle's and background knowledge. Templates are working examples of the practices to be learned and principles are higher order causal understanding and rules. Background knowledge is what the recipient has to have to receive the knowledge." pp. 9

Templates

"While much of the knowledge in the template may be captured in codified form, in schematics, blueprints or manuals, the codified versions generally fall far short of capturing "all the knowledge." The key point about a template is that, notwithstanding any deficiency of the manuals, all of the knowledge must be there - in the "working example." The problem therefore is to find where precisely the knowledge resides, and to capture it for further use." pp. 9

"The use of templates typically requires the recipient to repeatedly observe the template in action. Repeated observation of the template in action is well known to assist in passing on craft skills." pp. 9

"Using templates often requires that the recipient organization borrows personnel from the donor to supervise the construction of the plant and oversee the start-up phases." pp. 9

What I am proposing in having the user involved in this process is fundamentally new, and something that has been proven in other solutions, (Google) that improve iteratively. If we sit down to approach the development of software in this manner. Will this be enough of a change in the process that we will be able to set out to attain what it is we are looking for? With success being the objective? Has software been developed by the user with industry wide replication explicitly stated? Not in oil and gas.

"In some cases, the template is a historical datum, originally created for its value as a business unit without regard to the possibility of replication." pp. 10

"The organization typically spends much time and energy when it engages in template construction, template refinement and codification of practice." pp. 10

"In sum: to use templates means that, one way or another an effective working example must exist, be observable and be actively used in the replication process." pp.10

"An obvious place where principles work better occurs when each potential recipients context differs so much that templates fail to capture the relevant information in a cost effective manner." pp.10

Principles.

This last argument of Winters is the ideal situation. "when each potential recipients context differs so much that templates fail to capture the relevant information." This is what Principles set out to achieve. Is this possible with software? With the level of education that is generally experienced in the energy industry, Bachelors being common and Masters in most disciplines, the users that this project appeals to are well educated. It is time to ensure that this talent is captured and codified within this software.

"Because the conveying of knowledge by principles is central to the process of teaching in universities, defining principles for an academic audience hardly seems necessary; we use them all the time. But further explication may be helpful for the context of organizational routines." pp. 10

"Success in conveying principles often depends, therefore, on supplementing them with more concrete examples, models, hints and sketches." pp. 10

"Armed with solid understanding of principles, the recipient organization can often find its own way to successful implementation. (This is also the premise of much academic instruction in the "principles" of this or that.) Of course, the freedom entails a risk that the implementation will be seriously deficient, as is well illustrated by what happened in many attempts to implement "quality management" principles (Zbaracki, 1998) and in the academic setting is too often revealed at examination time. Also, reliance on the principles of any particular routine in isolation risks the missing of the hazards and opportunities arising from interactions among the routines." pp. 10

"Greek and Roman armies used the theorem of two mean proportionals to build military machines of appropriate (large) scale on site, without references to individual templates and that these principles were more robust and more useful than templates had been." pp. 11

Both principles and templates require the recipient's of the knowledge to have skill and understanding, that is background knowledge. pp. 11

One of the areas that we easily forget is, to use the technology that is available. Sometimes what can be said in a variety of text, voice, image and video is worth so much more then we realize. Companies such as Sun Microsystem post a lot of customer information on YouTube. Although my competitors are not offering green screens to the user, they certainly have not been able to implement or take advantage of the rich media that is available today.

Finally Winter's et al have some things to say regarding management and the commitment to replication.

It is not always enough for top management to display commitment. It is often important also that people in the organization have reason to believe the claim that what is being proposed can actually be done and will have the intended effects. We see parallels here with the work of Garud and Nayyar (1994), who noted that many research-oriented firms had large stocks of dormant knowledge that had been kept "alive" and that a firm could access this knowledge and exploit it perhaps in new uses not originally conceived. Such dormant knowledge has a number of features that tend to reduce barriers to transfer.

Like most situations involving organization change, the replication context is shaped by considerations of resource availability on the one side and performance pressures on the other.

It may well be that the context of performance pressure had something to do both with the choice of principles over templates and with the favorable results of that choice. At the top management level, it produced a demand for prompt action and a willingness to accept risks of failure. Down through the organization, and at the working level in particular, acceptance of the burdens of substantial change may have been encouraged by the perception of a gathering threat to organizational viability, and hence to future employment prospects.

It is not that quality oriented routines and hierarchy necessarily stop innovation; it was that the particular application of these routines and hierarchy in these organizations did so. The conjunction of too many unnecessary levels with many stifling routines served to block rather than facilitate learning.

Thus replication by principles does not necessarily require the presence of pre-existing learning skills or dynamic capabilities; rather, experience with the successful use of principles can serve as an incubator for change and learning.

Conclusions.

As I indicated earlier, the authors were surprisingly clear in their conclusions. Recall also that these were large organizations that had deployed these changes in upwards of 1,000 employee groups. In the case of the oil distributor they were dealing with unionized truck drivers and clerical staff. Changing the makeup of positions that were previously handled by "other" groups. Conceptually introducing the new methods and replicating them through the organization would have been difficult. However the authors seem unconstrained in their support for the "Principles" method of replication.

"They used principles instead; we found that this achieved impressive results, as measured by tests of quality, speed and costs." pp. 28

"This further suggests that, however, that imitation (by principles) may be a much more significant as a threat to an innovative "first mover" than it is to the firm that has emerged as the winner in an extended competitive contest." pp. 29

Technorati Tags: Genesys, User, Winter, Development, Replication

Photo Courtesy David Sifry

Another security concern.

I wrote earlier about my concern for the security risks associated with the new Zune and web phones, and that includes Apple's new iPhone. These large hard drives with wireless connectivity could be accessing corporate data without anyone knowing. The need to encrypt your network is critical these days, but it is also necessary to store your data in encrypted form. A very difficult task for a company to do. This new threat that I am writing about today will also be mitigated by high level encryption on the network and storage. I recommend Sun Microsystems Elliptical encryption technology.

The other product that has popped up that concerns me is Adobe's Apollo platform. In an attempt to "pick up where Java has left off" they have created a "run-time" that enables web applications to operate also as desktop applications. The manner in which they do this is of course is enabling Apollo to have access to the lower level operating system functions. This is where Java has drawn the line and it is the point where no Java application can access the data and systems of a client machine. Apollo takes this security precaution, throws into the garbage, and offers any user a tool that will enable anyone to provide web and desktop applications without knowing what is really going on. Behind the GUI application, another part of the same application may be copying data, destroying data or what ever it is they may want. It literally has nothing to stop the user from being entertained or distracted while it goes on its merry way through your client machine and network.

The key to solving this problem is to not download the "run-time" Difficult when you have many users. The "run-time" is necessary to run the "p" code that the applications will be distributed as. "p" code is not full binaries, but also not software code. As a result the user can not look at the code and determine what it's actually doing. Without the "runtime" when a web site uses some Apollo functionality, it will be unable to morph itself down into to the operating system level, disabling the feature of the website.

The other problem with this is the popularity that this platform will have. The demonstration that I saw was of an eBay Apollo application and included credit card numbers and access to the file systems. The users need to get the work done, and more and more that is all that the they are concerned about, and hence they will use what works, irrespective of the consequences of what they don't know or don't understand. The only people that I think are going to be interested in writing applications for Apollo are the ones who are currently writing viruses. The Apollo "run-time" doesn't let them in, it invites them in. No software vendor that is concerned with the security and reliability of the client systems will write to the Apollo "run-time", therefore it may simply be a matter of selection that the users are disallowed the use or download the Apollo "run-time". But then again, a good virus writer could probably install the "run-time" for the user.

Technorati Tags: Genesys, Security, Capabilities, Data

Hydrogen isn't it.

That is of course just one man's opinion. Thankfully the scientific community has taken up President's Bush's challenge on alternative energy sources. This video is also a continuation of the MIT Energy Research Council announced earlier and is a part of the excellent series on the challenges of energy.

The problems are derived from the energy security point of view. This video provides an understanding of the challenges that are faced in using hydrogen as an alternative energy source. This Professor stands out as being one of the recognized leaders in physics and electronic engineering and has a great delivery. As with many of the videos presenters, she identifies the problems that we face in terms of the global energy challenge from her own particular point of view. The growth in populations that are increasing their standard of living, China and India to name a few, are where the demand is increasing. Professor Dresselhaus mentions that this demand is not linear. Noting also that the U.S. consumption does not change necessarily with respect to the GDP increases.

As we are aware, the higher quality fossil fuels, are mostly located in the difficult areas of the globe. The use of coal by the U.S. and China are probably going to continue and may increase as demand for energy increases and the supply becomes more constrained. It is also projected that fossil fuels will supply 30% of the energy in the future, down from 80%, however I find that to be a surprising reduction. Some interesting points in the discussion include hydrogen provides twice the "power" of gas.

Professor Dresselhaus talk is mostly on working with hydrogen, and particularly the storage challenge it provides, and how Nano Structures provide a fresh look at these hydrogen issues. What is required in order to use hydrogen is a variety of catalysts to produce it, to store it and then to use it. The Nano Structures change the properties of catalysts. This provide three benefits during the catalysts phase. They increase the volume of hydrogen storage, they reduce the storage temperature requirements, and "borazene" gets trapped. Professor Dresselhaus also notes that gold is a catalyst in nano application even though gold is not normally a catalyst for hydrogen. She also draws a parallel to the benefits that Moore's law has provided in terms of computer processing capability. This she notes is this scope of benefit that is necessary to solve the worlds demand for energy in the future.

Hydrogen is a transmission agent of energy that were inspired by fuel cells. The use of hydrogen today is specific to its application and the U.S. produces 9 million Tonnes per year. The source of this hydrogen is from hydrocarbons and therefore limits its upward growth opportunities. What is needed is to extract the hydrogen from water which requires a catalyst and hence is very costly and difficult to do, particularly at what would be expected as commercial volumes.

Many of the areas that progress is beginning to be made seem to be more on the energy demand side of the equation. Light can be provided for half of the energy demands by using LED's and Photonics. The demand side is the area where most of the scientific advances are of benefit at this point in time. Professor Dresselhaus stresses again that the most critical issue here is the storage of hydrogen, noting that Hydrogen needs five times the storage size of gasoline. Hydrogen molecules are separated quite far apart. What is needed is a Nano particle as a binding agent to reduce the storage requirements. One binding agent Ammonia was shown to be benign and inert as a storage medium.

One can clearly see the issues that storage of hydrogen makes. The costs of these materials, the energy they consume themselves and their safety has prioritized the science community to focus on these first and foremost. One opportunity Professor Dresselhaus notes is the recent discovery in sunlight conversion multiples. Soon the output of solar cell could increase from its current 12 -13% efficiency, and with nano technologies, this can be brought up to a 30% efficiency. Professor Dresselhaus noted that an ideal application of solar may be in the production and storage of Hydrogen, this would reduce the hydrocarbon footprint of production. And a surprising comment that all of these scientific findings have been discovered since the Presidents 2003 announcement of a new energy initiative.

Technorati Tags: Genesys, MIT-Video, Science, Alternatives

SAP is SaaS (Software as a Service)

This just in from Professor Nicholas Carr. The CEO of SAP has changed his tune as too what the better software business model is. Well, we should all welcome SAP to the SaaS party, and since they are announcing a future development product, complete with its own code name "A1S" our warmest wishes to the latest and greatest of the vaporware vendors. There is also an explicit comment that the "users define their software requirements." In response to Carr's writing Vinnie Mirchandani writes that SAP is selling the SSDD.

Since SAP wants to re-tool to accommodate the new user requirements we should give them the opportunity. The point that I wanted to make here is that SAP is now in the same boat as this projects efforts are. The only difference is that SAP wants the oil and gas producer to get closer to its customers, (?) and we want to build software to expressly support the JOC, the natural form or organization for oil and gas.

So here are the energy industries options. IBM has sold out of the business, SAP is in a comprehensive rewrite due to a shift to a new (unknown to them) architecture, Oracle is rewriting their application, and we can only assume they are not employing the user since there are no Oracle Energy bats around. And there is this choice that I write about here. One that is unconstrained by the venture capitalists or capital markets, one that is unconstrained by existing code requirements, one that is based on solid research.

I guess what this really means is that SAP NetWeaver didn't work out. Exactly how many more chances does SAP have left?

Technorati Tags: Genesys, Software, Strategy, Development, Capabilities