The Economist on Cloud Computing.

A "special" report has been written and is being distributed by the Economist magazine. The download is being provided through sponsorship from AMD. The Cloud Computing paradigm is the method that will be used to host the People, Ideas & Objects application. The Economist starts with the following quote.

Information Technology is turning into a global cloud accessible from anywhere, says Ludwig Siegele. What does that mean for the way that people conduct business? p. 1

Google is the best example of a firm that has all of their applications delivered in this fashion. People, Ideas & Objects has been using Google Apps for our Domain for over one year now and have found this model of application delivery provides real value. I recently noted that we also evaluated SalesForce.com and will be implementing that application into our organization to better manage the producers involved in this software development. The cloud model is sound and provides some unique attributes that are not available in other Information Technology architectures.

The rise of the cloud is more than just another platform shift that gets geeks excited. It will undoubtedly transform the information technology (IT) industry, but it will also profoundly change the way people work and companies operate. It will allow digital technology to penetrate every nook and cranny of the economy and of society, creating some tricky political problems along the way. p. 1

This can seem to be much of the same claims about technologies influence in business. To suggest otherwise is difficult to prove. I would argue that our current market meltdown will be comprehensive in its elimination of the manner in which we conduct business. For it is the large bureaucracies that have failed in meeting the needs of society. If we are to re-build our organizations brick by brick and stick by stick, the use of new IT architectures will be necessary. Bureaucracies have had their day. The following quotation shows how difficult it is to foresee our way through our current difficulties by using an application like SAP.

Corporate IT has  always promised to make companies more agile. In the 1990s many companies re-engineered their business processes when they started using a form of software  called  enterprise resource planning (ERP), which does things such as managing a firms finances and employees.  But once these massive  software packages were in place, it was exceedingly difficult to change them. Implementing SAP, the market leader in ERP, is like pouring concrete into your company, goes an old joke among IT types. This  helps  to  explain  why  in  many firms IT departments and business units have traditionally been at loggerheads. In recent  years  tensions  have  worsened. Companies must grapple with ever changing markets and regulations, yet IT budgets are being cut. Many firms now have a huge backlog of IT projects. pp. 11 - 12

Why would People, Ideas & Objects using this new architecture be successful? I think the primary reason we would be successful is that our approach is not based on these technologies. That is to say we are not focused on the cloud to make the changes and provide the value to those that will use our application. Using the Joint Operating Committee (JOC) as the key organizational construct will bring into alignment the cultural, financial, legal, compliance & governance and operational decision making frameworks of the industry. This will also have the effect of bringing those participants in the JOC closer in terms of conducting joint operations, which is the global and systemic way of the industry.

Again, the software industry has been promising this for some years under the banner  of  service oriented architecture, discussed  in  an  earlier  chapter.  Yet  the adoption of SOA has been slow and many projects have failed, says Chris Howard of the Burton Group, a consultancy. The reasons are not just technical but cultural; for example, some business units are not used to sharing data. Cloud computing will help resolve  some  of  these  problems.  Many web based services are built to be integrated into existing business processes. p. 12

Adam Smith proved the theory of division of labor and its impact on production and productivity. Economically we have taken division of labor and specialization to substantial levels. To take it to the next level will require alternate means of organization and a much finer level of how work is performed.

In the Draft Specification it is also assumed that the oil and gas producer will be focused on their core competitiveness. The innovative oil and gas producer will concern themselves with their reserves, land base and most importantly their earth science and engineering capabilities. Providing hardware and software in which to operate the firm is about as distant to their competitive advantages as one can get.

What eff…ect will all this have on the nature of the firm? If IT systems really allow companies to become more modular and flexible, this should foster further specialization.  It  will  become  even  easier  to outsource business  processes,  or  at  least those parts of them where firms do not enjoy a competitive advantage. Companies will increasingly focus on their "core" and shed the "context", in the words of Geoffrey Moore, managing director of TCG Advisors. p. 12

This makes the approach to how the industry operates change fundamentally. The need to have different ways of operating, ways in which we can align the culture of the industry, is what the Cloud provides. These means of operation are a natural and necessary part of the oil and gas firm. People, Ideas & Objects should be considered the "industry operating system" of the oil and gas industry.

Both trends could mean that in future huge clouds which might be called  "industry operating  systems" will  provide basic services for a particular sector, for instance finance or logistics. On top of these systems will sit many specialized and interconnected firms,  just  like applications on a computing platform. Yet this is only half the story. The cloud changes not only the plumbing and structure of firms and industries,  known  as  the  "transactional layer", but also their interactional layers, a term coined by Andy Mulholland, chief technologist of Capgemini, a consultancy. He defines this as the environment where all  the  interactions  between people  take place,  both  within  an  organization  and with its business partners. p. 12

In the Accounting Voucher of the Draft Specification. It specifies the move away from transaction processing as the key functionality. Transaction processing is to a large extent expected in any system, and is not a competitive differentiation of the People, Ideas & Objects application. What is necessary and is built into the module is the transaction design that will enable the analysis of costs and the manner in which the work gets done.

Companies may not have much choice but to open up, says Mr Mulholland. Employees will increasingly resist constraints on their use of technology, and they will have a growing need to reach beyond the corporate firewall. Twenty years ago, he argues, 80% of the knowledge that workers required  to  do  their  jobs  resided  within their company. Now it is only 20% because the world is changing ever faster. "We need to be open to new and unknown connections with people and content," he says. p. 13

This last point shows cloud computing may become more of a main stream technology. Microsoft announced on Monday October 27th their Azure platform. Ray Ozzie of Lotus Notes fame said:

"We are in the early days of a transformation to services across the industry," said Ozzie at the conference.

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Why would accounting firms survive?

In the Draft Specification, I had documented the need for accounting firms to be heavily involved in a number of areas. Audit, compliance, consulting and technology implementation, training etc. In retrospect this was an oversight on my behalf and these activities should be handled by the community of users of the People, Ideas & Objects application.

Recall we have a situation where ideally the oil and gas investor is sitting at the JOC virtual table. It is the investors who are best able to represent their interests. Who they choose to ensure they meet compliance and governance is of importance. Asking once more, why would an oil and gas investor hire an accounting firm to handle their compliance audit and technology consulting?

These firms are a big part of the breakdown in the separation of ownership and management that led to the missalocation of capital and our current meltdown. They are the ones charged with the duty that management be held accountable and were on the front-lines throughout the last 70 years. In a nutshell they have failed. Not only have they failed, but they are also co-conspirators in creating the bubbles that have been built up in the last 10 years. These accounting firms should be treated as if they are radioactive. And that is how they will be treated in this software development project.

This might have become a fatal error on my part. So I am throwing this problem back to the community for resolution on how the investor can be assured that his compliance and governance is achieved. This specific issue should be resolved in the Preliminary Specification. And I would suggest that a clean slate approach be taken in line with the developing ideas of Carl Icahn.

The sad part of this episode is that I only realized my mistake when the accounting firms I contacted treated me like toxic waste. I must remember these accounting firms work for the management, and should therefore be dispatched to the garbage heap, pronto!

This is also why the 100 people needed to complete the Preliminary Specification should follow this process and join me here. To make sure that no more mistakes are made, and yes I do apologize for this.

Technorati Tags: People's Preliminary Specification Management Community

Professor Carlota Perez Respecialisation Part II

As promised here is the second and final installment of Professor Carlota Perez Respecialisation document.

GLOBALISATION, MARKET SEGMENTATION AND THE NATURE OF THE ICT PARADIGM

In this section Professor Perez makes a comment that I don't think I have heard before. It is also one in which we have to admit is an important aspect of how we do move to the economic prosperity that is promised in the "turning". She also draws a parallel to the "third surge" that occurred during the 1870's and continuing onto WWI.

One of the basic features of this paradigm is the trend towards globalisation, which is a consequence of the characteristics and the potential of information and telecommunications technologies.

Concluding with somewhat of a warning about investing too far abroad and neglecting advanced production systems at home.

Historical parallels do not lead to predictions; every paradigm and every set of circumstances is unique. They merely provide a useful frame of reference which points to aspects that may merit attention when analysing the corresponding period in another surge. The experience of the third surge shows that a powerful set of technological and infrastructural conditions facilitating worldwide expansion can function as an irresistible driver for global investment and trade. It gives a precedent showing that some well-endowed countries with appropriate policies can experience intense processes of catching up or forging ahead in connection with globalisation and the new technologies. It may also serve to warn that building finance-based empires abroad while neglecting advanced production investment in the home economy could later bring very unfavourable consequences.

Professor Perez goes onto to state that the British lost their dominant economic position to Germany and the United States as a result of not maintaining their infrastructure at home. I have heard many people say that the U.S. is a consumer based economy, and that is true. This does not mean that they have not invested internally to the detriment of their competitiveness. The characteristic I see the Americans having in this market meltdown is the capacity to accept change. To admit their downfall was their own fault, pick themselves up and get moving again. This remains undiminished in my opinion, and a key in their future competitiveness.

The ICT paradigm and globalization

How fast can a firm react. Today with Information Technology it is much faster then at any other point in time. Perez notes the costs of using the network are relatively small. The real costs are in the areas of research and development. That is what I have focused on in this blog for the past five years. We need to now build the application modules from the Preliminary Specification to the final Release Candidate (RC).

Knowledge capital and intangible value added facilitate heterogeneity, diversity and adaptability. these in turn lead to -and interact with- the segmentation of markets and the proliferation of niches. Globalisation leads to the interaction of the global and the local, both in terms of comparative advantages for production and innovation decisions and in terms of adaptability of global products to local markets. Production is then conceived in a complex range that may go from “mass customisation” achieving economies of scope and scale to multiple niches geared to attaining economies of specialisation. p. 21

Globalization, due to its speed and innovation of decision making, is here to stay. Despite the consequences of the current market meltdown, we need to keep this fact clearly in our minds that the inevitability of globalization is what we should aspire to.

ICT and the hyper-segmentation of markets: Outsourcing and off-shoring

Professor Perez is a a long wave Shumpeterian economic theorist. Creative destruction is what the markets have traditionally used to make the necessary changes on a permanent basis. That is what we are seeing in today's marketplace, the destruction of the old ways of doing things. We need the new globalized, IT enabled organizational structures that are able to increase the productivity of their workers and meet the markets demands for more. How this comes about is a part of what Professor Perez is suggesting.

As the processes of disaggregation and diversification become more and more complex and as the various competition factors in each segment become defined, so the relative advantages of the various regions, countries and companies become clearer for outsourcing and off-shoring. Thus, a feedback loop is generated intensifying the advantages of those initially successful in certain activities or segments, so that the assessment processes undertaken by various global companies favor them even further. This concentration eventually overshoots the mark and is, in turn, likely to generate new disadvantages that open opportunities for those discarded in the early rounds. p. 24

What is clearly being stated in this article is that the majority of the ways of doing things are going to be iterative over the life of the process. As new opportunities are discovered and implemented the firm will be able to increase the level of specialization and enhance its productivity. This is all enabled and facilitated by the Information & Communication Technologies. But how will this come about, and how will it be implemented? That is the question that I am attempting to suggest is a key criteria for proceeding with this software development project.

If we are to expect a dynamic and iterative marketplace for service and oil and gas production we are going to need an iterative and comprehensive oil and gas system that can adopt the changes. An Information Technology development capability for the future of the oil and gas industry. That is what People, Ideas & Objects is about, providing that change enabled IT capability using the Joint Operating Committee as the key organizational construct of the industry.

POLICY ACTION TOWARDS A SUSTAINABLE AND COHESIVE GLOBALIZATION

Professor Perez says something interesting that I don't think I completely subscribe to. And that is that markets may, as a result of unregulated financial markets, produce bubbles and collapses that affect the real economy and can lead to social unrest. It is certainly easy to see who has created the economic problems that we have today, (financial capital) and the risks of social unrest is very high.

As discussed in section three, the collapse of the bubble leaves three tensions acting in the economy: that between paper and real values, that between potential supply and effective demand (or premature market saturation), and that within society between the richer rich and the
poorer poor.

Since these three tensions define the conditions under which markets operate, free markets will only aggravate them. In the absence of conscious regulation and policies that will create conditions for redirecting investment towards a truly positive sum-game and a virtuous feedback cycle of global growth, the instabilities underlying the present performance of the various economies may produce collapses that could bring the world economy into recession or intensify the social tensions to the point of generating serious social unrest. p. 32

and

In the present Turning Point it could be said that excess free markets are as obsolete and represent as much of an obstacle to maximize growth in Deployment, as excess State intervention was seen to be during early Installation. p. 35

Where this discussion heads is uncertain at this time. I am surprised at the number of people who would normally shriek at the action of governments in the last few months, just accept them as necessary. Regulation of free markets may be the net result of this collective understanding that Professor Perez is suggesting is necessary.

The ‘other’ globalization, fully compatible with the paradigm and capable of unleashing a worldwide steady expansion of production, markets and well being, is waiting to be formulated. It would be production-centered and -led; pro-growth and pro-development; with dynamic, locally differentiated markets, enhancing national and other identities. But it will not be the creation of any invisible hand; it will work with the market but will require plenty of human imagination, ample participation, intense negotiations, much determination and collective political will. p. 35

I have asked a related question on this blog before. How will a globalized industry organize itself. Markets used to be created between face to face interaction. Now the ICT and globalized marketplace are able to achieve significant value add through the development of markets. This can not be and will not be through the standard face to face interactions that we are used to. I would also add the further adoption of enhanced regulations would best be handled in software.

Software defines and supports the organization. This was researched and determined in the Preliminary Research Report. We have to set out to build the software first and establish the infrastructure and market connections before they will happen. If globalization, as Professor Perez suggests in this paper, is enabled as a result of the Information & Communication Technologies, we need to focus on ICT as the key to instituting the change, ensuring that we become as innovative as possible for today and tomorrow. Please join me here.

Technorati Tags: People's Perez Software Market Governance

In these troubled times.

We need to better understand where we are and where we are headed. Professor Carlota Perez has provided excellent analysis regarding the economic cycles of the last 300 years. Professor Perez wrote this paper in 2005 and she provides new ideas to her theories. These theories have been a major contributor to both the Draft Specification and the understanding and predictive nature of what she has described as the economic "turning". And in so doing specified much of our current economies antics and a clear road for us to follow in building this software for the next Information & Communication Technology driven world we are to experience soon. This will be the fourteenth article / blog post that I have written on Professor Perez. 

"Respecialisation and the Deployment of the ICT Paradigm - an essay on the present challenges of globalization". I can not seem to find where I pulled the full document from. I have however, found a much smaller document that is available from the Cisco website. I am publishing this paper in two sections. This first section contains some valuable information that builds on her theories and adds to them. The second section will be published on Monday and contain new ideas that are directly pertinent to the work we have proposed in the Draft Specification.

Professor Perez picks up elements of, indirectly it seems, Professor Anthony Giddens Theory of Structuration and Professor Wanda Orlikowski Model of Structuration in this first quotation.

But the relationship is mutual. Technology shapes the economy as well as society and these, in turn, are constantly shaping technology, guiding its development and selecting within the potential it offers. The space of the technologically feasible will be filtered by the economically profitable and the socially and culturally acceptable as well as modified by market and policy developments (including inaction, as much as action, by the various social agents). p. 4

Well put Professor. I have been struggling with the "markets have failed" claim that seems to be made by any and all western governments in these past few months. Taking the management of the issue into the governments to me is setting us up for an even greater fall. The markets may have failed, but I am certain the governments will fail, and very quickly. The point I think they are making is that the markets are not sophisticated enough to have figured things out for itself. In a globalized system the optimal division of labor and specialization are not going to spontaneously order themselves as Hayek (1945) once stated. In this limited instance I can concur that the future methods of organization will need to take these points into consideration. I have incorporated many of these components into the Draft Specification and they were based on the work of Giddens and Orlikowski. Essentially saying that society and technology are self reinforcing and iterative. Denoting the enhanced role of software in our future economies. Professor Perez states a similar conclusion.

On the basis of that framework, it will argue that, though the role of free markets was crucial in the early decades of diffusion of the ICT revolution, their continued unrestrained and unguided operation can only aggravate the tensions inherited from the casino economy and the income polarization of the 1980s and 1990s. It will propose that a conscious, policy-facilitated and consensus-driven process of re-specialization in the developed economies can be the most effective way to overcome those tensions as well as the instabilities generated by the present uneven globalization of production.

The intention is to share some of the concerns and ideas for action that emerge from observing the present circumstances with the aid of a historical model of recurrence. As such it is a personal contribution to a debate about shaping the future, the need for which is becoming more acute as globalization proceeds. p. 5

The recurring diffusion patterns of revolutionary technologies.

Noting that history has provided four prior examples of the duality of the technologies definition and support of societal benefits, Professor Perez analyzes the current Information & Communication Technologies (ICT) and notes.

When the potential of that surge is exhausted, the new one [ICT] is articulated in circumstances that are unfavorable to it, because they have become over-adapted to the previous paradigm. That is why, it takes two or three decades of Schumpeterian creative destruction to demolish those obstacles and to prove the superiority of the new technologies and their capability to modernize the whole economy and increase its wealth creating capacities. p. 9

This time has past and we only need to deal with the difficulty of whom is to drive the car. As the old economy and its ways that are steeped in the history of the previous sixty years. Begin to collapse as they are today. Then and only then will the new technologies (ICT) take the lead position in new and innovative ways in the economy. SAP is the bureaucracy was what I suggested was the situation in the Preliminary Research Report. SAP began as a firm in the late 1970's proving the accuracy of Professor Perez' analysis that "decades of Schumpeterian creative destruction is required."

These changed conditions for the deployment period, will also modify the direction of innovation. Once the paradigm is established and the styles of life and main business models are more or less known, the core industries begin to make the transition from “supply push” innovation, of the sort that needs to create new markets by educating consumers and producers to a completely new way of functioning, to more of a “demand pull” model, where attention moves towards trying to fulfill consumer and producer’s needs by completing the new life and production styles with interlinking innovations or improving the ease of use of the existing products through complementary services and so on. p. 12

Doesn't this sound like the situation we are in today? Please check out the recently published Business Model for the People, Ideas & Objects software development application. What else may be in store for us is the following comment from Professor Perez.

Deployment, by contrast, sees investment become more sober and rational. The companies that emerged successful from the installation period invest to expand their scale of production and markets and to increase their productivity. The larger ones are likely to pursue mergers and acquisitions to stabilize markets in their industry and to occupy strategic territories to strengthen their competitive positions. There is a clear long-term view among decision-makers and innovation becomes a complement of such strategies. p. 14

The Turning Point as the space for role shift.

Once again we are seeing the accuracy of Professor Perez' research. Her analysis of the last 300 years brings to mind phenomenally prescient predictions. This next one in my mind, recall this being written in 2005, is as follows. It is also clear in reading the document that Professor Perez believes the dot com meltdown in 2001 was the beginning of the "turning".

It is precisely the tensions and instabilities that are the legacy of the frenzied bubble years that create the conditions for a shifting of roles, usually with the intervention of State regulation to control the excesses of finance, to counter its short-termism and to favor demand expansion and stable long term investment in production. That is the reason for the term Turning Point, referring to the tilting of the field away from favoring paper assets and towards favoring the flourishing of the real economy. p. 15

I can certify this software development project is 100% oriented to the "flourishing of the real economy." Professor Perez has more.

The first tension is the very essence of the bubble: a process of asset inflation in which the stock market (paper) values decouple from the real value of the companies they represent. Thus, rather than from dividends, profit gains come from reselling the assets or from participating in the many instruments (futures, derivatives, hedge funds or others) that are created in the casino economy that builds up during Installation.

Once the bubble collapses, this tension should disappear and the values should come back into line. The major losses bring the investors back to reality and the losers are likely to press for regulation. However, if the collapse is not big enough (as the author believes was the case with the NASDAQ in relation to the whole stock market) and/or if a healthy investment climate is not re-established after the bubble by an exemplary combination of punishment of fraud and “remedial” regulation, then the distorting influence of the financial world’s short-termism will weigh upon the economy and against growth.

At present, the CEOs of production companies find it extremely difficult and risky to embark upon long-term projects, not because of competition but because of the continued short-term profit pressures of the finance world. p. 16

A disconcerting comment made by Professor Perez is in relation to the democratic process. Noting that the divisions between rich and poor are most extreme at the point we are at now. This next quote brings on an eerie feeling with respect to the American election in general, and Barack Obama specifically.

What Installation leaves in its wake is the resentment stemming from downward mobility in the face of affluence. The conviction that “my children will be worse off than I have been”, confronted with the conspicuous consumption at the other end, results in loss of hope and breeds anger, violence, problems of governance and an increase in the attraction power of messianic leaders who thrive precisely on intensifying that resentment. There are also migratory pressures, as the most positive among the excluded run unimaginable risks to reach a place where –often accepting unacceptable conditions– they can hope for a better future. p. 18

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Carl Icahn 's United Shareholders.

I have argued here that the management in oil and gas has failed in their duties. (Running an ongoing series that I have termed the piggies.) Irrespective of the fact that management's grab bag of cash has dwindled to nothing, they have betrayed the shareholders of the companies that employ them. These people have damaged much of our lives, and we will pay dearly for their greed and myopic focus on themselves.

But we are not alone. While we are legitimately concerned about what the oil and gas industry will be able to do in the future, the extent of the damages to the capability of the industry is unknown. We are also seeing a similar wholesale management failure throughout the developed world. Currently the banking and financial communities, whose antics have been despicable, are the ones that have started us down this road of forced renewal. I am so pleased to see that people like Carl Icahn , an activist shareholder with a long history. Has established a "United Shareholders" organization to begin dealing with this systemic virus of managements lack of accountability. Icahn could be the spark plug that is needed to address this issue. (Click on the title of this entry to be taken to his blog.)

Management's use of regulations like Sarbane's Oxeley have been used to entrench their activities. In my opinion the regular frameworks adopting compliance and governance are required but are not the solution, nor are they the tools or organizational bodies that need to be employed. I see this as a civil framework that the shareholders can implement themselves. This also implies the separation of management and ownership will narrow decisively. And for oil and gas I have suggested that it is the shareholders or their representatives that are the people that participate at the Joint Operating Committee level in the People, Ideas & Objects application. 

Many of the excellent comments of Carl Icahn 's recent blog post include these points that in retrospect, are almost laughable that they were ever deemed acceptable behavior. Talking about the U.S. $700 billion bailout of the banks.

One reason that Paulson may have gotten the banks to agree to the restrictions is that they do very little to actually restrict compensation. It only covers the CEO, the CFO and the next three most highly compensated executive officers. This means that other highly paid executives aren't covered, such as Joseph Cassano, the head of AIG’s Financial Products unit who made $280 million in the last eight years writing credit default swaps that caused AIG's collapse, according to Congressional testimony this month.

This next quotation shows the possibility of a broad base of support for Ichan's initiative.

In my view, it was the boards of directors at institutions like Citigroup, Morgan Stanley and Merrill Lynch, Lehman Brothers, Bear Stearns, AIG and others that failed to stop management from pursuing risky strategies that crippled their firms. In his latest book "Where Have All the Leaders Gone?," retired auto executive Lee Iacocca writes, "Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder!"

and

"Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing," wrote Iacocca, adding, "The most famous business leaders are not the innovators but the guys in handcuffs." I’m not saying I totally agree with Iacocca, because we do have some great business leaders in this country. But there is definitely too little shareholder outrage over self-serving executives who get massive paychecks for deeply flawed performances.

Sarbanes-Oxley was aimed at making corporate board oversight stronger in the wake of the collapse of Enron, WorldCom and others. But when we see the kind of debacles that occurred over the last year, obviously that legislation is only part of the solution. What we need is millions of shareholders to rise up and demand more accountability on the parts of boards and managements of the companies they hold.

Subscribing to Ichan's blog can be done here, and if your a resident of the U.S. please sign up for his United Shareholders of America campaign. And lets start dealing with this problem from a constructive point of view. Join me here.

Technorati Tags: People's Management Failure Pig Governance

From transaction processing to transaction design.

To suggest that high levels of transaction processing will be included in People, Ideas & Objects should not be a surprise to anyone. This is standard fare in any system that manages the commercial aspects of an oil and gas concern. The real key in generating value in the oil and gas industry is in the area of what I call transaction design.

First lets get to one of the assumptions that I have used in preparing the Draft Specification. That is, the pursuit of growth within the organization is misguided. The focus of the producer firm is to determine where the value resides. Pursuing value versus growth implies that "activity", where both value is created and destroyed, will be eliminated through tools to design the transactions and their execution. This is done in the Accounting Voucher module of the Draft Specification.

The JOC is the method that the industry uses for all of its operational decisions. This is systemic on a global basis. Yet not one ERP system (Oracle, SAP & others) recognizes the JOC as the key organizational construct of the industry. It is also important to note, as I recently stated, the participants that sit on the JOC are ideally the actual investors that own the property. It will be those that are members of the JOC that evaluate the quantitative and qualitative analysis that supports the decisions being made.


What I am trying to say here is that the muddling of accountability across many organizations and departments leaves no one accountable for the success or mistakes that are made. The source of the bad decision could be in any one of the JOC member companies where analysis of what went wrong is not available to any of the other producers. Not that the idea is to punish people, but to learn from those mistakes and make sure they don't happen again. Mistakes are a necessary part of the innovation process. Without the capacity to analyze the mistakes that are made, will only fuel the same mistake being repeated elsewhere. The same is said for the successful operational decisions. What was it that caused the success to occur is a necessary analysis that should also be completed.

These elements of transaction design have been implemented in the Accounting Voucher module of the People, Ideas & Objects application. The interface elements of the module provide access to the information and resources that reside in the producers that are members of the JOC. This enables those members of the JOC to test and implement their understanding and what new science may have been developed. This is a key focus of how and where the innovation within the oil and gas industry will evolve. As the science increases, more innovative and creative uses of the science will be implemented, leading ultimately to more new science. This incremental looping is facilitated through the Accounting Voucher modules transaction design elements.

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Google Health, and it's user interface.

I seem to be spending a lot of time writing about Google and the technologies that they're releasing. I have to say that what they are putting out is very impressive and reflects the massive development that has been ongoing there for the last few years. Click on the title of this entry to watch a video of how Google Health was built. Of particular interest is the amount of time and discussion that is dedicated to the users experience.

Other discussions talk about the many issues around access to the confidential data. Of course health related information is highly confidential, but there are many people that you would want to have access to it, like an emergency room doctor. I think in the People, Ideas & Objects application we face many of the same data integrity and security issues. Proving that this information can reside on the web and that their are solutions to these issues.

The centralization of data comes up as a big advantage in this video. I recently talked about the Google G:Drive or Google Docs and Spreadsheets. Having one certifiable copy of the data with access control privileges; answers so many of the related security risks and is able to get the right information in the right hands at the right time.

Finally the Question & Answer session of the video shows the level of detailed thinking that has to be put into something like this type of secure application. The questions and answers are some of the best I have ever seen being raised in an open forum such as this video.

Again I want to impress upon you the urgency that I feel we proceed with this software development project. Nothing more can be done with out the financial resources necessary to commence and continue development. If you know of an investor in oil and gas, please send them the URL to this web log and encourage them to sponsor this worthwhile project.

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No one's fault but our own.

On this blog I have documented many of the possible scenarios we may be faced with. Not that these have created a sense of calm, but more to fully explore where we are, and what we should be doing.

We are also not moving forward. The Preliminary Specification needs to define what the scope of the application is. Recruiting of the 100 individuals for this task continues. And by all means, particularly if you have some good ideas, use this process to join me here.

We have specified our alternatives as consisting of 1) Regressing to barbarism with manual systems, 2) Motivating SAP and Oracle to accept our never ending stream of big cheques, or 3) Follow the vision as defined in the Draft Specification and based on a fundamentally more affordable business model.

Not to belabor the point, but it has taken me since September 2003 to produce the Draft Specification. It is a compelling solution that offers a vision that reconciles many of the conflicts & contradictions inherent in the oil and gas industry. The time that it will take for some one to offer a fourth alternative is a time frame that society can not afford.

So our time to consider alternatives has passed. We are now in the full force of the crisis or turning as Professor Carlota Perez calls this time. The need for IT to begin to carry the weight of the economy on its own is our ticket to the very good times, as she so ably describes.

I have used the Intellectual Property (IP) built up in this project to achieve 2 different but critical objectives.

1. To establish that the users will have free and unencumbered access to the IP, and to prepare a derivative service offering to the oil and gas producer.
   
2. Focus the resources of the industry on this one solution.
   

I think it is reasonable to assume, that over many years of development, and even if our scope is determined in the Preliminary Specification as only North America, that our multi-year budget will most assuredly breach the $1 billion mark.

And with all of this there is a heightened sense of urgency. We must not fail.

To add insult to injury the current custodial management have done everything they could to eliminate any and all competitive choices to run the industry. Theirs has now failed and I suspect they will undertake 2 possible directions. They will either continue on in a lame duck fashion, irrespective of the consequences of more time wasted. Or abandon ship. Either way this further constricts our actions.

It has been my experience in the past 10 years that the management have abandoned ship far to often. The floor of "corporate responsibility" has been established by these managers. There seem to me that there is nothing left but the shouting and finger pointing to occupy management's so precious of time.

So what should we do. Our first priority is to establish the revenue streams that are necessary to support the users and developers in the Preliminary Specification. (See the proposed budget and charter.) For it is "different this time". The last great turning was 1929 to 1941. We were at war for much of this time, a war that mitigated the negative economic effects of the turning. It was also a time in which we had barely begun to leverage the use of oil. A leverage that stands at 18,000 man hours per barrel of oil today. And it was a time when businesses, industries and societies pace was dictated by the speed of which paper physically moved, we no longer share these luxuries of our past.

We therefore face two crisis.

1. The declining reserves and production of the oil and gas industry. (Peak Oil)
2. The credit crisis / turning.
   

Living through only one of these crisis has the capability of moving society within inches of hell. Two crisis provides us with a much higher probability of reaching that unwanted destination. Expecting anything from management to mitigate the potential of these crisis is foolhardy and dangerous.

Join me here, and lets restore this industry, brick by brick and stick by stick to its full potential, or face the consequences. If we expect anyone, or specifically management, to do this for us, we will have indeed failed. As of today, we now have no one to blame but ourselves. If you know of an investor or government representative to help establish our revenue streams, please send them the URL to this blog and encourage them to join us here.

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British PM Gordon Brown, gets it.

I have a quote from our local paper, The Calgary Herald, regarding British Prime Minister Gordon Brown's call on world leaders to create a new financial architecture to replace the Bretton Woods system.

Sometimes it does take a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed, Brown said in a speech at the London offices of Thomson Reuters.

and

"I'm slightly less terrified today than I was on Friday," said Princeton University economist Paul Krugman, named as the winner of the Nobel prize in economics on Monday. "We're going to have a recession and perhaps a prolonged one but perhaps not a collapse."

What governments, in this current economic meltdown, seem unable to say is no to any request for funds. If they had learned to say "no" many years ago to the guy with no income no job or assets (ninja) who wanted a mortgage, then we wouldn't be in this state.

I first raised the issue of a credit crisis in a blog entry entitled Beyond the Red Horizon. In the entry I suggested that CNRL would have difficulty in getting their heavy oil production on line due to the looming credit crisis and severe credit levels that the company holds. Particularly the $3.2 Billion working capital deficiency. (What were they thinking?) The companies shares are down $41.76 since I wrote those comments. Trading at $40.47, a mere shadow of its former self. I think they should get prepared for the real hair cut that will soon affect the company. (Yes, even though we have lost $30 trillion globally.)

This firms management have placed the company in a situation where they have absolutely no options. They will soon be unable to meet payroll, unable to pay their field service providers and many other normal business operations that are now beyond the scope of the companies capabilities. No matter how you add it up, the situation is unworkable. Yet Murray Edwards, one of the many Vice Chairman of the firm, says absolutely nothing in this recent interview with Forbes. He has a responsibility to his shareholders to be a little clearer on this topic, don't you think? These kind of comments only let the credit crisis monsters get an eye on where to go next. If you have shares in CNRL get out before they are run into the ground. And thank Murray Edwards on your way out.

The preliminaries in the fowl winds of this credit crisis are now over. The bullets have all been fired and now the serious business of this meltdown will begin. I would expect the rolling and violent stock markets will continue with a strong downward trend. What will now begin to happen is the currencies and value of the countries will face the same types of horrendous devaluation forces. (Bankrupt countries like Iceland.) I don't like discussing these issues, it is however somewhat comforting to be knowing what will happen next, and I hope to be providing some forewarning.

In all of this calamity it is important to note that opportunities are opening up to everyone. This is a brand new clean slate with the wealthy people like Murray Edwards unable to save their money from destruction, and no time or energy to pursue these new opportunities. Get in and earn yourself a healthy position in some kind of assets that will eventually be sold or auctioned. We are going to need to re-build the industry brick by brick and stick by stick. Just as Gordon Brown stated, "Sometimes it does take a crisis for people to agree that
what is obvious and should have been done years ago can no longer be
postponed."

Join me here in building this software to manage the oil and gas industry. We have limited choices, use manual systems, give SAP another try, or build this software and re-build the industry for those that are prepared to take these opportunities.

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Capital vs. Talent, the Battle Rages On.

In the current Fall 2008 issue of the Rotman school magazine. They have another article that I think provides support for the work that we are doing in this software development project. Entitled "Capital vs. Talent, the Battle Rages On" it has some very sound ideas, so lets dig in.

The article argues through a quick review of some of the recent history of how industries have lost some of their value through a rise in the talent that makes the firm operate. Noting that capital has not been able to effectively deal with talent costs since Warren Buffets days at Salomon Brothers. A few decades ago Buffet removed $110 million from the bonus pool of the managers, and as a result created tension between the ownership and their management. This eventually led to the talent moving from Salomon Brothers and the rest as they say, is history.

Today similar issues are systemic throughout the business world. Warren Buffet's recent investment in Goldman Sachs came with agreement of the "C" class executives to limit sales of their shares to 10% of their holdings until 2011, or when Buffet realizes his investment.

The CEO and the Wall Street brokerages have received ever increasing pay and at the same time derision from most people. Why are they entitled to so much compensation? I have recently written about the Piggies consisting of the four mid sized oil and gas companies. These pigs have granted themselves up to $3.3 billion of "in the money" stock option compensation, which I calculated just before the down draft of our current markets took hold. These points go toward how I see the current systems, and particularly the financial systems, are failing in a manner that is somewhat consistent with the former Soviet Union's collapse.

That is to say, you get to a point where the efficiencies of the way things are done begin to breakdown. The speed of the bureaucracies are woefully incapable of addressing the issues and the pace of business. Particularly the market demands of an innovative oil and gas producer. Soon the volume of resources are not able to address the needs and the breakdown begins it's downward spiral.

This is what is happening to our systems today. The problem that is unique to this time and place is that economies are dependent on high levels of division of labor. Without the efficiencies of those systems available to us we are relegated to manual systems. And we can't replace the old systems with anything new, as those systems like this software development project, have not yet been built.

The article in Rotman writes;

From giant pension funds to small retail investors, capital has increasingly lost its patience with talent, whether it be CEOs, fund managers, lawyers, investment bankers, athletes or actors. Capital is particularly upset because it really liked the previous world – which crested for it in the 1960-to-1980 period and has headed downhill ever since. The truth is, capital is no longer the undisputed ‘scarce resource’ of the economy, and accordingly, its bargaining power has dramatically waned. p.5

This stating that management who controls the company has taken care of its own interests, and forgotten the other stakeholders in their decisions.

As a result, capital will increasingly find itself in a negotiation with a wide variety of its employees, with each dedicated to finding out exactly how much he or she can extract. Instead of feeling like it is getting a fabulous deal from its best customer service representative (CSR) – who currently earns the standard compensation package for CSR’s – capital will find itself paying top dollar to keep that fabulous CSR engaged. However, anyone from the talent side who has a desire to plum the depths of ‘how much’ rather than ‘enough’ needs to heed certain rules of value maximization. p. 6

Here we have in a nutshell the importance of this software development project. The talent to run the oil and gas industry is independent of the producers that engage them. Recall the competitive advantages that a producer firm is concerned with is their land base, and the capabilities in terms of its science and engineering. The administration, reporting and compliance attributes traditionally handled by an ERP system are a cost of business that does not serve to increase the producers competitive advantage.

However, the competitive advantage that People, Ideas & Objects has as its objective is to provide the oil and gas producer with the most profitable manner in which to operate their land base and capabilities. This point drives the fundamental nature of the changes that we are seeing. A move away from growth to capturing value, and from processing transactions to designing transactions to optimize that value. Please review the Accounting Voucher module to see how these attributes are implemented in People, Ideas & Objects.

The article then goes into a detailed description of how talent can maximize their value.

Achieve and Maintain Distinctiveness

Thus it is important for talent to thwart any attempts to simplify or codify the knowledge structures underlying the talent in question. The more the basis for talent development is heuristic in nature -- i.e. based on experience and judgment – and the less it is algorithmic i.e. “I studied the manual” – the better for talent. Putting up barriers to the replication of its distinctiveness is critical to the maintenance of talent differentiation. p. 6

Very difficult to do when the systems that exist today are set in concrete and not able to adapt. What is needed is the users of the People, Ideas & Objects software application have a dedicated software development capability available to capture the "experience and judgment" of the users. 

Establish the Clear Line of Sight to End Customers

The key is for the talent to make sure that the customer can see and appreciate its contribution to the value proposition, because then the customer will induce capital to acquire the requisite talent -- often with little regard for the cost. p. 7

As the head of People, Ideas & Objects I have the user clearly established as my customer. And I know that the user has the producer clearly identified in their sights.

Attach to Deep Pools of Capital

Talent positions itself as absolutely critical to all aspects of the business, and in doing so, it attaches itself irreversibly to the pool of capital that leverages its activities. p. 7

Capital, the difficult part. The oil and gas industry has several trillion dollars in annual revenue. It is an industry that will be learning more in the next few years then what it learned from the past 140. Having a dynamic capability to support this industry will provide value to those that are able to make the producers the most profitable. Work involved in developing the software for People, Ideas & Objects allows the users to earn some of their revenue from People, Ideas & Objects, but their revenue is also from the producers in which the users provide their services.

In terms of revenue I also assess the producers a fee for use of the system, in which goes to pay the developers, project managers, account managers and users.

Develop Creative Extraction Formulas

To specify what may be a creative solution for the users in extracting their value from the producers, I fear that I may limit the creative aspect in an area that is not my business. You can also see with my recent post where it is clear that I am going through the process of identifying the sources of revenues that I need to finance this development. The users should consider these same issues and develop their own service offerings and revenue solutions.

Defenses for Capital

After all they are our customers. And we don't want to repeat the same mistakes that the current management has done in killing their golden goose, the oil and gas investor. However it will also be worthwhile to see how investors may try to mitigate the effect of an environment that we are building in this community.

Maintain Closer Involvement

It will be the darkest of days that capital is completely uninvolved in the enterprise. p. 8

Well it certainly seems dark doesn't it. I have suggested a means to resolve this with my recent publication of what an oil and gas investor should do. This will accelerate management's demise forcing them to place the firms assets on the market for sale. Once there the investor can buy the actual property and actively manage it through the People, Ideas & Objects software and its Community of Independent Service Providers. 

Commoditize Classes of Talent

Sorry that train has left the station. The need to commoditize talent I think is understood to be in the best interest of investors in most other industries. But in a dynamic oil and gas environment the investor is going to want to have the talent that can roll with the punches. That is what is clearly being offered in the People, Ideas & Objects software and Community of Independent Service Providers.

Build Talent-Independent Assets

Here the authors are suggesting that investors dabble in other businesses that are capital intensive, and hence reduce the influence of talent. I don't understand this point, but I can assure you the oil and gas industry will remain dynamic for the next 100 years and the attitude of the investor needs to cooperate with the talent in order to A) make the transition from the bureaucracies and B) motivate them to build and deliver the systems and services that will accommodate innovative producers.

Collectivize to Fight Talent

I won't address this point as I think that the article captures the right spirit but may be tactically trying to optimize the relationship in the investors benefit. And although that has happened throughout the last century, I fail to see how it could be done today. We all need each other. Its management that we don't need. The attitude of the article appears focused on not allowing the same problems with the bureaucracy re-occurring.

If you are interested in this development please follow the process here to make application to participate in the Preliminary Specification. If you are aware of some investors in oil and gas that fit the description in this post, please forward the URL to them and encourage them to participate in making this development real. And please, join me here.

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