The U.S. Election

It's early yet, but it looks like it is a clear win for President Elect Barack Obama. I hope that the U.S. press corps is happy with their selection, and are able to continue the strong spin they have been able to put on this very light-weight president. It should be clear that I have not drank the Obama koolaid. What is aggravating about this situation is that the direction that the U.S. is taking is totally against its history.

Hope and change are great things that all people should aspire to. And that is the Obama message. Nothing more, and there can't be much less. I see two possible scenarios for Obama. One he'll go back on all his promises and govern responsibly, (the Bill Clinton role) or maintain his integrity with the American people and run the country into the ground. We'll soon see which road he picks and as a result of his zeal for the White House, where he would say and do anything to win over a voter, he now has to deal with the responsibility of governing.

The press can't help him there. Governing is the tough part. Where tough decisions are made. Some of those decisions will actually make people unhappy. There is no voting present as the president. One thing that might keep President Obama from making any decisions is the do nothing Congress of Nancy Pelosi and the lunatic Harry Reid in the senate. That the U.S. has put the democrats in power in the house, the senate and the presidency is the American nightmare.

I have found the press coverage of the last presidency to be as wanting as the sales job on Obama. I think President George W. Bush was a great president, primarily and almost exclusively because of his leadership. That's what is needed in these tough times. Leadership on the war, the economy, and the world. Obama may find the herding of cats in Europe too be to his liking. I suspect he'll be spending most of his time making sure everyone gets heard. Nonetheless leadership is not a personality or popularity contest, and president Bush never wavered from what he believed in. We will see how long it takes for the press and their democratic troika to fall out of favor. Implementing a strategy of class warfare in an election is great, until the day you actually win the election, but I don't suspect anyone in the Obama camp has thought of that yet.

Technorati Tags: People's Leadership

Miss-allocated capital.

How did we get ourselves into this economic situation. Professor Perez suggests this a result of long term economic cycles. This will be the fifth "turning" that has happened in the last 237 years. We can see in each of these that the past methods of economic growth and prosperity are no longer able to carry the load of the economy on their own. This appears to be as a result of the inability to invest wisely in making the economy more efficient. And I would suggest that the old and tired bureaucracy, a 20th century innovation, is primarily responsible.

The new Information & Communication Technologies (ICT) provide new ways of organizational efficiency. The rebuilding of industries to make the necessary changes is the scope of the current economic crisis. The damages to the old and tired organizations is so comprehensive in these turnings that rebuilding makes them necessary. We have a particularly critical situation in this turning that we had not faced before. The globalized and highly sophisticated economy based on Adam Smith's theory of specialization and division of labor. We physically can't self organize anymore. 

By miss-allocating capital, firms have not increased the base of productive assets in the economy. Instead of reaping continued returns from each years investment, we see our real earnings decline from neglect and no new revenues being generated. As a result the majority of the capital in the past 10 years has been spent on consumers non-productive needs. Purchasing bigger houses and renovating them took on a heightened importance in the economy. Those that have purchased homes at these high prices have only valued the size of their mortgages.

A mindset that the government will "fix it" I think will fade after the election today. The government knows the size of the problem and are aware that one of the most competitive advantages of the American people is their ability to pick themselves up and start again. This characteristic is the key to why the American economy is the most powerful in the world. And will continue to be. When as I noted in yesterday's post Volvo lost 99.6% of their unit orders of heavy trucks, and the Baltic Dry Index had fallen by 90%. It is clear to see that no goods are moving in the world economy right now. So it no longer becomes a credit crisis but is a major economic event that will affect the entire world. The governments are powerless to resolve even these two symptoms.

The lives that we have led for the past ten years will be changed fundamentally. The time we spend in a depressive economic state is dependent on us as individuals. Picking things up brick by brick and stick by stick is the only manner in which we are going to get ourselves out of these problems. It will be tough but we need to begin today. What ever becomes of the oil and gas industry it will need new systems to organize the people in the productive and critical energy production.

Professor Perez notes in a presentation;

For the next two decades at least, Information and Communication Technologies Industries and Services are not just an important industry, they are the key to competitiveness of any company, of any country, of any region. The shape of ICT infrastructure is the shape of the future.

Please, join me here.

Technorati Tags: People's Perez Failure Government

Software, and Eisenhower's Interstate.

President Eisenhower started the Interstate and Defense highway system in 1956. Many have credited this system with providing a solid foundation of which the U.S. economy has grown. In 2006 President Bush noted:

Today, 50 years after the Federal-Aid Highway Act of 1956 was signed, the Eisenhower Interstate System has made our society the most mobile in the world and contributed to the continuing growth of our economy.

Progressive governments have always had a role in developing the infrastructure for their societies to prosper. This has established a clear line of separation between what is a capital works and private activities.

Today our economies are globalized and very sophisticated. The dependency on others to provide for our needs has never been greater. Most people would agree that the ability to survive on their own for the long term is not a skill that has been developed. Our dependence on one another has never been so great, and therefore, fragile.

I've been harping on a theme in this blog since the Preliminary Research Report was published. Suggesting that SAP is the bureaucracy and the heightened role of software in the oil and gas industry. At times I have felt that this message is not well received, and I attribute that to the Y2K fiasco. Y2K has made software, and the people in the technology business, less influential. Leading to what I would suggest is a patent disregard for the value and significance of the technologies.

I am only realizing myself why this is the wrong point of view for society to have taken. So many of our organizations are failing that we are unable to achieve the reliability that we had achieved and expected in the last 50 years. On Wednesday, I showed up at my regular Starbucks and asked for my usual Venti Mild coffee. They said they were out of coffee. Dumbfounded I said what and struggled to keep myself from waking too quickly.

The concern that I have is these events are happening too frequently to be a random or isolated event. The systems that we have grown to expect are in a state of failure that will only expand as the organizations that we depend upon face one financial Tsunami after another. We need to address these points by building the systems that are replacements to the current systems that are failing. Otherwise we are faced with the prospect of using our survival skills to make due.

The sense of urgency in which we approach the development of our replacement systems is accelerated by the storm clouds on the horizon. On Bloomberg this weekend I saw this commentary that in the day to day of the past fifty years we could never have imagined. Entitled "The Shipping News Suggests World Economy is Toast". Chronicling the slowdown at Volvo, the second largest truck manufacturer in the world, in the third quarter. In the third quarter of 2007 Volvo received 41,970 heavy trucks orders . In 2008 the number was 155. The article also documents how the shipping industries Baltic Dry Index has collapsed. Rendering revenues for ships at 10% of normal. These events were probably triggered way back in August 2007 at the beginning of the market problems.

This is after the world has pumped unknown trillions of dollars to prop up the systems. We need to start concentrating on these types of issues. Or the food and other necessities on those ships will never make it to the consumers that need them. This is a warning sign of bad things to come and we need to heed the call.

The Eisenhower administration was not faced with these dire situations in 1956. Peace had broken out and the depression had subsided from immediate memory. The role of government is to ensure that the systems and infrastructure are able to meet the needs of its people. That is why the governments, in addition to providing liquidity and interest rate relief should fund industry supporting software development projects.

The role of government has been discussed many times in Professor Carlota Perez' papers. In her Strategy + Business "Thought Leader" interview she stated:

Government needs to be reinvented, using as much imagination as it took to design the welfare state in the first place. It all seems impossible now, but things always seem impossible at this point in the surge. p. 7

Governments need to be involved in the financing of software development projects such as People, Ideas & Objects. Providing the software that enables local economies to function may be the new dividing line between have and have not.

Because left to itself, it might not happen. Historical regularities are not a blueprint; they only indicate likelihood. We are at the crossroads right now. It is our responsibility to make sure that the enormous growth potential of the next golden age will not be lost. p. 7

We have a choice, be constrained by our current organizations and their poor performance, regress to manual systems and barbarianism, or build the software for tomorrow's organization today. Join me here.

Technorati Tags: People's Perez Call-to-Action Software Organization

Recommitting to Sun Microsystems.

Sun put out their third quarter earnings today. Those that have seen them probably share a concern that I have about the stability and durability of the company and its products. Clearly we are a Sun customer. Every product we are proposing to be used in the People, Ideas & Objects application modules is a Sun product first and foremost. I feel that they have "some skin in the game" and are therefore easily motivated to make their technology work, and they have.

We can't afford any of the finger pointing between vendors that we have seen in the past systems. That game is unacceptable to the users, developers, account managers, project managers and investors in the oil and gas industry. This expectation is also in line with the companies genetic makeup. They are an engineering firm, first and foremost with most of the technologies being far superior to the competitions. The only complaint I have of Sun is that I wish they would hire some people to take out the garbage. And what I mean by that is they have a tendency to solve the big problems and unfortunately the other less problematic tasks get overlooked. This is not a significant problem but one that shows up in their marketing at times.

Speaking of marketing, the open source initiatives the company has implemented are the reason that the risks in committing to them are minor. We would still be able to use and improve Java for our needs even if the companies receivers were hounding the researchers. Try that with an IBM or HP.

Jonathon Schwartz the President and CEO is an avid blogger and has been quoted in innovation in oil and gas many times. His blog post today provides a wealth of information that is more informal then the statutory reporting, and hence useful. Comments like these from Jonathon are the ones that make me feel that sticking with them carries little to no risk.

What went well within the quarter?

The biggest highlights were the performance of our Solaris based, chip multi-threading (CMT) systems, which again grew a whopping 80%, year over year. These systems leverage awareness of Solaris/Opensolaris and our outstanding ISV portfolio, and are driven by extreme energy
efficiency and virtualization - attributes we just multiplied with the launch of our newest CMT system: the T5440.

Simultaneously, our Open Storage systems also delivered a great quarter, up 150+% year over year. These systems, known by many as Thumpers, are amplified by the awareness of our open source ZFS file system, a technology at the heart of Sun's storage business. You'll be hearing more about Open Storage at a launch event we're holding on November 10th. If you're technical, and you want some hints about what we're about to unveil, click here.

And finally, most of our software business grew - including MySQL, Java, alongside Solaris, management and our virtualization products. As we've been saying, open source is a great distribution model - and it feeds a great revenue model.

Now, how is Software growing if you give everything away?

We make our software freely available to enable its distribution to the farthest reaches of the market - which we then monetize with commercial subscriptions and services, alongside optimized hardware systems (like Open Storage, above). We continue to reach customers that have already settled on our software - the process of selling to them is simplified by the fact they're already using our core products. And unlike most university students (who typically have more time than money), our paying customers view downtime or administrative complexity as more expensive than a software subscription (that is, they have more money
than time).

Thus, customers will pay, and continue to pay for access to enterprise grade features, along with mission critical support and maintenance - the Software business is both a license, subscription and services business.

To understand the total size and value of Software at Sun, you need to look at billings alongside our multi billion dollar support streams - remembering that a lot of our software is sold as a subscription service (remember, it's open source). In addition, you have to recognize that how much a "Systems Service" support contract is attributable to software is entirely subjective (we don't price them separately to customers). It's like asking how much revenue a mobile phone manufacturer should attribute to their operating system - you're not charged separately at the point of sale.

Wait, you make money off Java?

Yes, it's among the most profitable technology products at Sun - and improving. Java's one of the most popularly distributed pieces of Software on the internet, we distribute over a million Java run times a day to users across every OS and geography on PC's. That helps us reach a very broad community of users and, more importantly, developers. We have some exciting news coming up around these distribution volumes - and their value to us, and others.

Noting the importance of the customer in their product offerings...

What is Sun focusing on?

Strategically, we continue to focus on two core areas - creating the world's largest, and fastest growing developer communities - for whom we build the products, services and technologies on which they'll build their products and services. With brands like MySQL, Java and OpenSolaris - we measure and drive their adoption very aggressively.

And secondly, we deliver compelling commercial offers to those deploying applications - across a diversity of industries - through commercial subscription, services and optimized system products. That is, we sell data-center systems, software and services.

We're focused on today's customers with our current products and services, and tomorrow's customers with our investments in freely distributed software.

Operationally, we're focused on execution - in the field, in the labs, and on behalf of our shareholders. Innovation loves a crisis, even when the stock markets don't - and Sun's positioned very well to supply the platforms on which the next generation of clouds will be
built.

When I look at the firms offerings and see the stock's price, a mere $4.0 billion market cap, I shake my head. I think Sun has put themselves out in front of the competition. And I think that the firm is dedicated to doing the right things right, which makes them particularly difficult to understand. Open source and proprietary systems are the tools of building a strong firm for the long run. The problem for people investing in the firm is that the story doesn't necessarily fit into a $4.0 billion package. Given time the firm will be able to better articulate their story. This will only happen after the general public can better understand the difficult concepts that the firm operates with.

Technorati Tags: People's Sun Market Management Trends

The State of the Energy Industry.

Quotes from ASPO-USA.com

The price of oil and natural gas have both tanked as a result of the market meltdown. What is most impressive about this changing marketplace is its speed. The rapid decent has caused the commodities to be brought down with the rest of the market. For oil and gas that spells more trouble down the road. What we lose in terms of capacity to conduct operations may turn out to be substantial. The further we get behind the natural decline curve, the harder it is to reclaim lost positions.

I continue to believe one day within the next five to ten years we will see oil at $600.00 / barrel. When demand does return, the product lag may be severe with investors committing to long term projects on much much longer lead times. The Canadian oil sands will be seen as the white elephant that it is, with most projects being scaled back in order to mitigate the losses.

This market is much more dire then I suspected. Professor Perez suggests the turning is necessary to institute the changes between the old economy and the new economy. What we forget is the reality of the situation when we are in it. What I suspect will happen is the stock markets to drop more in the next two years. The liquidity crisis is contained and the markets will ease into a steady decline. Now the tough bit comes. Choosing who stays and who goes. The solvency of companies in all industries will be as brutal a drop as we have seen in this liquidity drop.

Canadian Natural Resource Ltd will be announcing their third quarter results on November 6th. This may be the end of the firm as we know it, I can't even see how they've been able to make payroll this month. There will be the need to address the credit crunch and their Mickey Mouse approach to financing. For the firm to make money will be as a result of the valuation of mark to market coming on September 30, a time when energy prices were lower, therefore lowering their unrealized loss on commodity sales. The point will be made very clear to them that they can't finance a $3.2 billion working capital deficiency and $26 billion in total debt. I am sure the Horizon project is sinking beyond the horizon of what is possible. The ability to have this project propped up is next to impossible. CNRL is insolvent and needs to be shut down.

The ability to have a partner come in and take over the remaining development will be difficult. The heavy oil plant is generally an overall strategy of the firm, companies need to dedicate natural gas for fuel and condensate for diluent. A company coming in can't create this situation and as such getting into the Horizon plant will be difficult.

Nonetheless the following quotations are from the ASPO USA weekly bulletin. The first item is very disconcerting in that I am not aware of any attempt to deal with the difficulty mentioned, the retirement of the human resource in the industry. We know that the retirement of the brain trust is going to happen in the next five years. Weather this market meltdown stops many from retiring is too optimistic to suggest. This problem must be dealt with, and in the Draft Specification I have proposed that building redundant capabilities in each company is the source of the problem and its ultimate solution. The producers need to pool their capabilities in order to mitigate this problem. Pool them on the basis of their interests in the JOC. Using the Military Command & Control metaphor to provide the governance mechanisms that the producers need.

Despite falling costs for steel and other materials, the oil and gas industry again finds itself confronting a shortage of people with the skills and experience to lead new developments. If efforts to plug the skills gap don't succeed, senior industry executives say oil companies' ability to tap new and challenging hydrocarbon resources fast enough to meet demand may have already have reached its limit. (10/23, #17)

The speed and ability of the industry is in question, imagine that, someone should have suggested a new organizational structure for the industry to follow. Please excuse my sarcasm, I really can't help myself.

This next article / quotation is from Jim Gray who had built up a strong natural gas company that is now buried somewhere in Connoco Phillips. He and his partner, John Majors were able to solve some difficult geological problems in the late 1980's building up a firm by the name of Canadian Hunter. Here he suggests there is more at stake then just the money issues that are in the news headlines.

“I’m strongly of the opinion that we’re on the cusp of a global liquid fuels crisis. The forthcoming energy crisis, should it develop, could result in economic, political and social stresses, and turmoil on a scale not experienced for half a century.”
-- Jim Gray, former CEO of Canadian Hunter Exploration

As the Canadian industry moved towards its ultimate strategy of "me too" and we have 10 or so heavy oil projects. The rest of the industry has waned substantially. Natural gas production is down 12% and as our former Governor General stated, Canadian conventional oil production is in steep decline as well.

Ed Schreyer in the Q&A, Ed noted that tar sands are now 50% of Canadian oil supply, as conventional production is declining steeply. With the current financial crisis and very high capital costs for tar sands development, turbulent times are coming for the oil & gas industry in Canada.

So here we are faced with an impossible situation in an impossible financial meltdown. What will these boy geniuses think of to make this problem workable. Fund this development? Not on your life. They want nothing to do with working for a living.

The funding has to come from the two previously identified sources. The disgruntled shareholders who are fed up with the management and can see the vision as it is layed out in the Draft Specification. And the various governments who have royalty regimes in place in oil and gas producing regions. And are able to see that society is too complicated for Hayek's Spontaneous Order to occur. And realize that the "new" economy after this meltdown has had all its fun, needs to have the software built first before we can reorganize based on specialization and define a new division of labor. Please join me here.

Technorati Tags: People's Energy Call-to-action Vision

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.

Technorati Tags: People's Trends Collaboration Development

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.

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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.

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