Professor's Baldwin and von Hipple I

Professor's Carliss Baldwin of Harvard, and Eric von Hipple of MIT have jointly published a paper that is of the highest quality and topical focus. Entitled "Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation." Carliss Baldwin is someone we have followed closely on this blog. Her work has been in the area of Modularity, Transaction Costs and Thin Crossing Points and is incorporated in the Draft Specification, mostly in the Accounting Voucher module. You can find our review of her work by selecting the Baldwin Label on this blog. We have also reviewed Eric von Hipple's work here as well. A review of his book "Democratizing Innovation", (Free eBook here.) and an MIT video of his presentation. His work is mostly on innovation and we have incorporated some of his ideas in the Draft Specification. Specifically, use of his understanding of Intellectual Property (IP) and how it can be applied in communities such as People, Ideas & Objects. I will briefly discuss IP in this post and hopefully be able to write about it in greater detail in the near future. Nonetheless, these IP related thoughts are incorporated here in the way that People can join this project. Coverage of Professor von Hipple's work does not have a label to aggregate all the posts in this blog, however you can search this blog for his content.

I want to put all this material out in this post, and address more of the substance in subsequent posts. I think this paper is of the highest quality and very pertinent to the work that is being done at People, Ideas & Objects. The abstract of this paper says it all.

In this paper we assess the economic viability of innovation by producers relative to two increasingly important alternative models: innovations by single user individuals or firms, and open collaborative innovation projects. We analyze the design costs and architectures and communication costs associated with each model. We conclude that innovation by individual users and also open collaborative innovation increasingly compete with - and may displace – producer innovation in many parts of the economy. We argue that a transition from producer innovation to open single user and open collaborative innovation is desirable in terms of social welfare, and so worthy of support by policymakers.

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More on the Preliminary Specification

The Draft Specification provides the overall vision of how these systems will be built and operate in the oil and gas industry. The Preliminary Specification uses the overall vision of the Draft Specification and puts much of the greater needs or details of each individual job in the oil and gas industry. Answering many of the what and how questions of the things that need to be done. This is a very large group of people that together hold the full scope of understanding of the industry. I am of the belief the Preliminary Specification will require several hundred people to develop a strong skeleton of the systems needs.

It is also this large group of people that will become the core of the Community of Independent Service Providers offerings. Providing leadership for both the Preliminary Specification and forming the core service offerings to support the producers in the future.

The role of the producers is critical at this point. Critical from the point of their specific needs. Participation helps to make the solution appropriate for their needs not only from a process and functionality point of view. But also getting involved at the beginning will help them form the service process relationships and fully integrate their firm's needs in the software. This is one of the critical areas of the quality that will eventually be reflected by this community and its software offering. Why the oil and gas companies continue to belittle the process and withhold their participation is beyond me. That however, is their problem as we can do this without the producers active involvement. They are critical for their individual needs, not the systems development.

Although I have detailed some of the technologies that are being used in this project. These technologies are not critical to the Preliminary Specification. In fact I want to eliminate any and all discussion of technology. It's not important and would be an impediment to the creative process that we are involved in. Using the Joint Operating Committee as the key organizational construct requires this blank slate approach. It has been the basis of how this design started, and as a result, will remain the key value of how this community provides the long term value to their client producers.

The deliverables from the Preliminary Specification will have a defined project scope. As a result, in subsequent phases of development we should not have any scope creep. Another key deliverable will be the development of the stories that communicate the systems needs to the developers. The last deliverable that I want to mention today will be how the CISP are able to take this design and integrate the software, through their service operation.

This sounds fairly ambitious, particularly from the point of view of the numbers of people. I would point out in my defense the name People, Ideas & Objects considers this. Also I would point out the spread of ideas to date. The Draft Specification has had over 1,500 people read Part I, and over 700 people read Part II. Think about that from the point of view of people having to spend a few hours reading this. If we draw a few hundred people out of this community, that have been reading and thinking about this system design, thinking about their involvement, bringing their ideas, and thinking how they can build a service offering to provide the producers with the most profitable means of oil and gas operation...

People are driving these changes, and their doing it from a business point of view. Trust me when I say that the developers will be able to accommodate any design that comes out of the Preliminary Specification. I guarantee it, therefore focusing on technology is a distraction. For the past 40 years it has been the technology that has driven the focus of oil and gas systems. The technologies and the compliance frameworks have made the oil and gas company about as foreign to the JOC as is possible to conceive. We are moving the focus away from technology to focus on the most profitable means of oil and gas operations.

In a world where the oil and gas producer will need to make more decisions based on ideas derived from the earth sciences and engineering basis of the business. A world where decisions are based on the legal and financial foundations of the participants of a JOC. The Community of Independent Service Providers and Users will capture this in the Preliminary Specification. Creating a system and organization that are representative of the underlying meeting of the minds of the producers involved. Please join me here.

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The issue in a nutshell.

The Oil & Gas Journal is covering The Society of Exploration Geophysicists (SEG) annual meeting in Houston. The topic of discussion is the exact issue that this software development project is designed to solve. The key issue which I wrote about in the Preliminary Research Report in May 2004. From the Journal's opening paragraph.

Energy research and development challenges are becoming more complex, demand integrated and individual approaches, and are in need of wider funding sources, concluded a forum at the Society of Exploration Geophysicists annual meeting in Houston.

When I read these types of articles I get frustrated and angry. Frustrated and angry at the do-nothing bureaucrats who currently occupy space at the oil and gas companies. The last six years has seen my efforts to promote this software development project, community and associated research, with absolutely no support, and not one penny from the oil and gas companies. The Journal's discussion goes on to quantify the amount of effort that needs to be undertaken.

John McDonald, Chevron vice-president and chief technology officer, reminded SEG delegates that the world took 125 years to consume the first trillion barrels of oil and is using the second trillion in 25 years. It is estimated that another trillion barrels remain to be discovered, ostensibly at a cost of $20 trillion over the next two decades.

This current bunch of bureaucrats suggest and expect we just hand $20 trillion over to further line their pockets? Where is the outrage? How is it that I was able to write the Preliminary Research Report in May of 2004? Was I the only individual in the oil and gas industry to realize this? Of course not, what was known in May 2004 was that this was a trend that was developing in the industry. And as I state in that report, the industry needs to move away from the banking mentality of guaranteed returns on their oil and gas investments. And begin developing the necessary resources and organizational structures necessary to support an innovative and performance based organization to address the underlying sciences.

So what are you going to do, Mr. budget director? Will you now undertake to do a study of the issue? Spend time and money marshaling resources towards coming up with a new vision of how the industry will solve these difficult issues. Gain a consensus amongst budget directors on what that vision should be. Hire SAP or Oracle to build you a system that gets you closer to your customer? You should be finished well after 2029 and therefore, your retirement will be fully secured.

You had your chance in May 2004, and instead did nothing. Now the consequences of your inaction will be the result of you being removed from the industry. Besides I think your going to be busy explaining what the hell it is that you have been doing all this time.

Bringing six years of research and a governing vision to the industry today has to be worth something. The community is ready and willing to move, the financial resources are all that is needed to be dedicated to this software development and community. Interested shareholders and investors should email me here with commitments to move forward. And please join me here.

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John Hagel on Pursuing Passion

Passion is something that is being discussed more and more in the business community these days. It's something that I feel fortunate to have discovered and have been able to focus my energies on this software development project. There is a comfort and peace afforded to those who find their passions, it is in many ways the reward for taking the risks and enduring the sacrifice. In terms of the discussion, passion is a difficult topic to define and describe what it is, and why it affects people in the way that it does. John Hagel has taken the time to define it from the point of view of a business necessity. I would highly recommend reading his document, I think he does the best job of it yet.

Hagel makes the point that with the economic conditions we find in the twenty first century, passion will be a necessity. As he states.

If we have not found a way to make our passion our profession or to discover passion in our profession, we will very quickly succumb to the growing economic and competitive pressures that are shaping our global business landscape.  The pressures will inexorably mount. Without passion, we will increasingly experience stress, our energy will be steadily drained and we will ultimately burn out under the mounting pressure. At best, we will be marginalized as we find ways to achieve “balance” and safety valves for the mounting pressure at work.

The definition of passion is broken into two distinct types. Hagel says there are "true believers" and "explorers." The true believer is described as "Their passion is enduring and it does focus, but it can also blind – leading the entrepreneur to reject critical input that does not match their preconceived views." Not a productive environment in my opinion. Collaboration is a major means of how ideas are developed today. To ignore the ideas of those that are involved is somewhat disrespectful. I'd like to think that this project would be defined as an "explorer" which Hagel describes as.

These are people who see a domain, but not the path. The fact that the paths are not clearly defined is what excites them and motivates them to move into the domain. It also makes them alert to a variety of inputs that can help them to better understand the domain and discover more promising paths through the unexplored terrain. They are constantly balancing the need to move forward with the need to be present in the moment and reflect on the experiences and inputs they are encountering.

I have prepared the supporting research that proves the Joint Operating Committee provides the innovative and organizational performance that the oil and gas producer must have. From this research I have been able to sketch out a vision of how a system based on the JOC would operate. The Draft Specification is the beginning of the involvement of the Community of Independent Service Providers. This is where the passions of many people will take the Draft Specification and build the software applications they will need in their day to day work in the oil and gas industry. Hagel notes;

Passion is also about pursuit. It is not passive. People with passion are driven to pursue and create. They may read books and observe others, but they are not content being bystanders. They feel an overwhelming urge to engage, to experience for themselves and to test their own capabilities. Passion compels us to act.

The heading of this blog calls to those with passion to act.

A global community of professionals dedicated to optimizing the performance and profitability of innovative oil and gas producers. We are focused on developing IT systems based on the Joint Operating Committee. The legal, financial, operational decision making, cultural and communication frameworks of all producers.

A community of people open to new ideas, who know that energy is the life blood of our global economy. People of action who demand more from IT, please join us.

I hope that I have designed a path for others with passion to follow. The comprehensive nature of John Hagel's article is best read in it's entirety, and please review his passion manifesto. The one comment that I would leave you with, if you are in oil and gas, is People, Ideas & Objects is the place where you can find your passion and act to make a difference in the industry. Please join me here.

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McKinsey on Enterprise 2.0

We have an interesting video of Professor Andrew McAfee talking about technologies under the label of Enterprise 2.0. This will be the fourth time that I have highlighted McAfee's work and the sixty third McKinsey article. All I can say is I'm glad this body of work is behind me. I still have many McKinsey articles that I want to write about, just not enough time in the day.

Professor Andrew McAfee coined the phrase and defined what "Enterprise 2.0" is and means. Particularly from the point of view of how organizations will be affected by these technologies. Like the recent discussion of Google CEO Eric Schmidt, McAfee is not talking about the technologies for the sake of the technologies but the massive impact that the Information Technology revolution is having on business.

Last time I highlighted the work of Professor McAfee and his Enterprise 2.0 concepts he was at Harvard. He seems to have escaped and moved closer to the river by joining MIT and is now the principal research scientist at the "Center for Digital Business" at the MIT Sloan School of Management. He also has a book coming out called "Enterprise 2.0: New Collaborative Tools for your Organization’s Toughest Challenges". Lastly the McKinsey article has this video presentation of this paper. (Video is available here.)

McKinsey ask a number of pertinent questions. McAfee's answers provide real value for this community in terms of what and how "Enterprise 2.0" and People, Ideas & Objects application modules will affect today's work place. The following is how I see it for oil and gas.

McKinsey: How is Enterprise 2.0 changing the way we work?

McAfee's answer to this question is in line with the collaborative developments of WikiPedia. How the initial start attempted to control the contributions of people, and only after scrapping the process and leaving it to self organized teams did the value, quality and quantity increase.

I see a much larger change. The 7 / 24 clock will be the time people are available to work. Asynchronous Process Management, a cornerstone of the People, Ideas & Objects Technical Vision will permit people to work when and where they want. The office will not be used even half as much as they are today, and the quality of life will be substantially higher. When the computer screen looks the same at home or in the coffee shop as it does at the office, an office will become a place to go to concentrate. The rest of the day will be interspersed with personal and work related activities completed as required.

McKinsey: How do you get this started in an organization?

McAfee comments;

There’s a lot of debate about that question right now. And the debate is typically between people who advocate [a top-down approach and those who advocate] almost a purely bottom-up approach—in other words, deploy the tools, stop worrying about what’s going to happen, and get out of the way as the management of the company and let it percolate up from down below. Or, if you hear about a grassroots effort, encourage it, support it financially, but, again, get out of the way, let the bottom-up energy happen.

People, Ideas & Objects has chosen the bottom-up grassroots method of solving these problems and building the software based on the Draft Specification. I like McAfee's comment that if you hear of a grassroots effort, encourage it, support it financially. Music to my ears so start spreading the news.

This software development can not be a sustained and quality effort unless the users are compensated financially for their time. This is a big part of our budget and defines why our approach is different from the rest of the marketplace. As McAfee states in this document, developing the community takes time and effort.

McKinsey: What else can undermine adoption?

McAfee notes the unreasonable time frames put on by management. People, Ideas & Object software developments, or any collaborative project, will not be zipping along before the end of the quarter. Such expectations are how the hierarchy greases the wheels with the consumption of human energy and spirit.

Another failure mode is to be too concerned about the possible risks and the downsides. If we get wrapped up in those, we’re not going to take the plunge and actually deploy any of these new tools and turn them on and encourage people to go ahead.

I don't see the downside here. Collaboration brings many risks to the bureaucracy. However their risks are the result of the collaboration out performing the bureaucracy. I can live with those risks, and I think that McAfeee's audience is different to those of this blog. He is preaching to the unconverted and as such has to hedge his comments while he moves the Trojan horse into place.

McKinsey: What is the CIO’s role in encouraging Enterprise 2.0 and managing the risk?

McAfee notes;

A lot of them see their roles as essentially conservative, though. In other words, “My job is to not increase the risk profile of this organization before everything else.” That’s a legitimate concern, it’s a legitimate job for the CIO, but all my experience so far tells me that Enterprise 2.0 doesn’t increase the risk profile of an organization.

This is probably why I get in so much difficulty with companies. I ask sarcastically what's a CIO? I don't see them surviving in the long run. Much like secretaries and draftsmen these positions may disappear rather quickly. These types of comments should be directed to the CEO or the CFO as they have the proper authority and responsibility to make the decision.

In my presentations to the industry I noticed something that I had never learned or considered before. When I talk to CEO's or CFO's I feel there desire to pick up People, Ideas & Objects software developments. Why they haven't is that they would do serious damage to their firms by changing direction to quickly, without the urgent need and support for the change. They therefore pass on the opportunity until such time as we proceed to a point where they can make the change.

McKinsey: What does this mean for middle managers?

McAfee notes;

If you’re a middle manager who essentially views your job as one of gate keeping or refereeing information flows, you should be pretty frightened by these technologies, because they’re going to greatly reduce your ability to do that. They’re going to reduce your ability to filter what goes up in the organization and what comes down in the organization. And they’re going to greatly reduce your ability to curtail who your people can interact with, talk with, and receive information from. So if you’re inherently a gatekeeper, this is a real problem for you.

In my presentations to the industry it is this group of people that feel challenged by these technologies and the People, Ideas & Objects application. The class of workers known as middle managers career and position are toast. I don't foresee many of these people continuing to be effective in the very near future. If this is news to anyone in middle management, good morning.

McKinsey: How should companies measure the success of Enterprise 2.0?

McAfee notes;

Again, you see a lot of energy, you see a lot of people very willing to take a few seconds to answer a colleague’s question—even if it’s a colleague they don’t know. So when I see successful companies tackling this tool kit, I see them doing a little bit of thinking upfront about what problem or opportunity they’re trying to address, then deploying an appropriate technology in response to that. They then measure progress: How much uptake are we getting? What’s the traffic look like on this? Which is very different than measuring ROI, I think.

In the Preliminary Research Report I suggested that companies use the revenue per employee as a measure of an oil and gas firms performance. Revenue per employee can vary significantly from company to company based on the unique attributes of its asset base. It has direct application between producers and is an accurate measure of the firms current and future capabilities. This is particularly the case as those producers with low revenue per employee will have difficulty increasing the revenue factor without having to address a possible over staffing issue.

The purpose, or competitive advantage, for the Community of Independent Service Providers and People, Ideas & Objects software applications. Is to provide the innovative producer with the most effective and profitable means of oil and gas operations. Revenue per employee will be a critical method of how the community advances the science of management and business for the oil and gas clients using this software and community. Please join us here.

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Pemex makes the change.

The market for People, Ideas & Objects software application is the oil and gas industry in general. This includes the International Oil Companies (IOC's), National Oil Companies (NOC's), Independents and start-ups. All of which of course use the Joint Operating Committee (JOC) as the means to deal with their partners. All of these types of organizations have the same needs from the point of view of managing their oil and gas assets.

Each barrel of oil equivalent is on a steep upward curve in terms of the volume of science and engineering involved in bringing the products to market. It is this upward cost curve that challenges the bureaucracies to keep up. What they are finding is the pace of change and the demand for innovative thinking is beyond the capabilities of the hierarchical firm. This is the situation for most of the western based producers and service companies.

People, Ideas & Objects approach is particularly unique from the point of view providing the NOC's. Pemex, Saudi Aramco, Petronas and the China National Oil Company to name just a few. Traditionally they have been charged with developing the countries energy resources for the country itself. Whether that is for its internal consumption of energy, management of royalties and / or export. The challenge to them is similar to the IOC's and Independents in that the level of effort per barrel of oil equivalent continues to escalate.

Mexican firm Petroleos Mexicanos is now indicating they will change how they develop their energy resources. In the Oil and Gas Journal, an article documenting the change notes.

Mexico’s state-owned Petroleos Mexicanos and the Secretaria de Energia (Sener) are preparing risk contracts that will be offered to oil companies—international and domestic—in order accelerate the search for oil and gas, according to local media.

These risk contracts have been used with a multitude of other methods by the NOC's before. The one constant is the Joint Operating Committee (JOC) is the means to manage these contracts. Recall the JOC is the legal foundation of the oil and gas industry. This is on a systemic and global basis with IOC's, NOC's etc. Pemex establishes the following framework for these contracts;

Sener explains that it is urgent "to speed up the discovery of new oil fields and the incorporation of reserves, as well as increase Pemex's execution capacity, particularly through new contracting schemes so that specialized companies can support its activities."

Clearly indicating that the support they are looking for not only includes the producer firms but also the service companies. Pemex is one of a number of countries that are establishing this trend as a result of the new realities of the scientific developments of the oil and gas industry.

Evidence of this is reflected in the research of the Baker Institutes Energy Forum's Cases under the heading of "The Role of National Oil Companies in International Energy Markets". In particular I want to highlight the research that was completed on for Malaysia's Petronas NOC. Reading that document clearly reflects the conclusion resonates with the work being done by the People, Ideas & Objects community. It also resonates with Petronas' strategy, history and economic needs.

In 2005 a Vice President of Petronas speaking before the Asian Energy Forum presented the firms corporate strategy. He emphasized several elements including growth and maximizing returns for shareholders. Growth has brought the move towards a global strategy with the desire to be an overseas investor in upstream and downstream sectors as well as encouraging foreign investment in Malaysia, while maximizing shareholder profits; he also noted the company's efforts to benefit local needs through a long term program involving Malaysia, host countries and other firms.

He asserted that it is important for Petronas to work with credible partners for several reasons:

1. Risks mitigation
2. Access to market
3. Access to proprietary technology
4. Political strength
5. Government to government relationship p. 21

In my opinion this strategy is wholly consistent with both the Community of Independent Service Providers (CISP) and People, Ideas & Objects. Why?, due to the activities and operations of Petronas and other NOC's, the IOC's, Independents and start up producers need to align their governance and compliance frameworks with the JOC's legal, financial, operational decision making, cultural and communication frameworks. This alignment brings a transparency  between the participants that increases the accountability of all oil and gas operations for all concerned, irrespective of the individual strategies employed by each participant in the JOC. The current situation where the corporate compliance and governance frameworks are focused only on the individual corporation is inconsistent with the legal, financial, operational decision making, cultural and communication frameworks and operations of the JOC of which they are party to.

By granting a concession, lease, risk contract or any other vehicle to establish these oil and gas operations, a JOC is created. It is therefore necessary that the systems and procedures of those participants to the JOC have the JOC identified, supported and implicit in the day to day and strategic operation.

Additionally, each NOC or government that is interested in optimizing their oil and gas operations, both from a royalty income stream or as an active explorer and producer, want to have their jurisdiction open and active with the remainder of the oil and gas industry. Having the capacity to operate on the same basis of the global oil and gas producers and suppliers provides synergies to all involved. Using a standard system, such as People, Ideas & Objects amongst all participants of the industry enables access to the resources of the service companies, producer firms and other groups that may be involved in the JOC and available through an application based on the Draft Specification.

This also works for Petronas and other NOC's from the point of view of their strategy of wanting to be involved in oil and gas operations on a global basis. They, with standard systems based on the JOC, can easily participate based on known methods and means of operation on a global basis.

This is not a case of nationalization, although nationalism was a factor in its original formation. It has been a generally solid and well-respected partner to both private and state entities around the world. While it has become involved in a wide range of agreements with other companies and states in which its equity percentages has varied, Petronas itself is 100% state owned. It has no present intention to privatize. p. 35

Involving NOC's in the future in this manner is also consistent with the activities of the Baker Institute with their governing objective.

The Baker Institute Energy Forum is a multifaceted center that promotes original, forward-looking discussion and research on the energy-related challenges facing our society in the 21st century.

This future needs to be backed up by a software development capability as provided by the Community of Independent Service Providers and People, Ideas & Objects application modules. Please join us here.

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Eric Schmidt's Google IO Keynote

Dr. Eric Schmidt, CEO of Google presented the keynote at the Google IO conference. Many of the things that he says are consistent and applicable to work being done by this community. What I want to highlight in this post is the maturation of the underlying Information technologies. We entered this decade with the misguided belief that IT systems would collapse due to some storage related issues with the date. The final nail in the coffin of tech careers came with the 2001 dot com meltdown. The one constant throughout these issues was the focus on technology. Technology fails when its presented as the reason for change. In many ways as a result of the fallout of these technical failures, the belief that technologies day had ended became the standard thinking of people outside of technology companies.

This software development project focuses on the business issues inherent in the oil and gas industry as the justification for change. In addition, are the structural economic changes in play during this time of renewal. Schmidt agrees;

And let me tell you that it's time, it's time for us to take advantage of the amazing opportunity that is before us.

Yes now is the time when all the planet's line up. The technology, the business environment and society demand a greater efficiency. Schmidt notes in terms of the maturity of technology.

Why is it time? Because people are frustrated. They're tired of the complexity of all the systems that have been built up over the last 20 years. They do not work.

Schmidt then talks about an interesting characteristic of innovation. That innovation always happens elsewhere. Great ideas come from everywhere. That confirms what we have learned about innovation in the Preliminary Research Reports findings. Professor Giovanni Dosi notes the endogenous and exogenous forces of a firms innovativeness. The role of science and its development need to be the focus of the oil and gas producer. In an iterative loop scientific capability enables the innovations, and in turn those innovations advance the science. Major impacts to the science, as Dr Schmidt notes, usually happen elsewhere. The need for the scientific capability of the producer firm has to be mirrored through the industry and the service suppliers.

In a fast moving and innovation driven oil and gas industry the necessary resources need to work together. With the escalating demand of the sciences in each barrel of oil equivalent, and the retirement of much of the industry brain-trust. Building separate and mutually exclusive capabilities in each oil and gas company has to cease. The Resource Marketplace Module deals with these and other issues, such as who owns the Intellectual Property (IP) of the science and innovation.

Scalability and Power is just at the beginning of getting this right. The message is that this is the real beginning of the real win of cloud computing. Of the real win of applications. Of the real win of the Internet. Which is changing the computing paradigm - the one we have all grown up with - so it just works. It works no matter what device you are using, whatever operating system your using, as long as your connected - even if you are not connected - your online and have everything you need.

I'm not one to highlight the technological aspects of this software development project. The focus of People, Ideas & Objects is on the business attributes of changing to the Joint Operating Committee as the key organizational construct. However, Users need to know that the time and technologies maturity is now. Voices like Eric Schmidt, who has also been the CEO of Novell Networks and Sun Microsystems, is able to provide the necessary credibility for the users to join me here.

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More constructive changes.

In my last post I showed how the Information Technologies needed to be monitored more closely by oil and gas companies. Noting that SAP's Gravity application was too powerful to be put in the hands of users without a method to ensure the technologies did not violate the compliance and governance models. This is a type of risk that I have identified many times in the past few years. A risk that grows larger each day.

It's one thing to criticize and another to provide solutions. That is what the Draft Specification is about, providing the innovative oil and gas producer with the vision, community, tools and methods needed to ensure they are compliant and working within their compliance and governance requirements. Management have chosen to stick with their bureaucracies and SAP, which defines and supports the management, for their own purposes. This blog has targeted the shareholders and investors that own the oil and gas companies, are dissatisfied with their managements, and see the Draft Specification as an alternative.

I mentioned the Military Command & Control Metaphor (MCCM) in my last post. That's for the members of the Joint Operating Committee to establish a chain of command and governance of the assets managed by the JOC. That an engineer from company A, a geologist from company B and an administrator from company C can see that the authority and responsibility are held by certain individuals and are capable, authorized and responsible for making the decisions for that JOC. This would be expanded to include the designated staff from each producer who are part of the JOC, the field operations people and those that may be consultants and / or suppliers to the property.

Not to get too off track here, I want to make a point that has not been stated before. The source of the People in the CISP are globally sourced. This provides the producer with the best possible means of having the most competitive offerings available to them.

The MCCM and the Compliance & Governance Module of the Draft Specification are designed to instill a JOC with the requisite authority, command and control based on the compliance and governance requirements. In a world where the number of people that work for a JOC may total thousands, having anything but a highly dynamic and flexible work force can only be managed by the ultra slow bureaucracy or the MCCM of the Draft Specification. If we are to expand the economic performance of the oil and gas industry we will need a more defined division of labor. A global marketplace of the talents necessary to expand the performance of the oil and gas industry. To suggest anything else is irresponsible, and SAP should know better.

How is it that the software development being undertaken by People, Ideas & Objects is able to employ the MCCM? The methods of how the development is undertaken is User involved. The User base, or as they are referred to here as the Community of Independent Service Providers or CISP is composed of the entire population of the industry. This entire population of the industry is also part of the Resource Marketplace Module. A module that provides People from suppliers, producers and vendors to market, engage and build business relationships. Where their qualifications and capabilities are able to designate their offerings as their potential role in the JOC based on the MCCM. It is then the producers of the JOC to engage in the resource and establish the transactions between the producer and its suppliers / vendors / CIPS. And designate the individuals with the requisite authority, responsibility, task, calendar etc. of the JOC. People, Ideas & Objects being part of the CISP can be included in the JOC's MCCM and therefore undertake the appropriate software developments and have the JOC with the requisite authority to make the changes to the software.

Our competitive advantage, of both People, Ideas & Objects and the CISP is to provide the most profitable means of oil and gas operations. Dare I ask what SAP or Oracle provides the oil and gas producer. Please join me here.

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Changing deck chairs on the Titanic

I should thank SAP for this post. They have published a YouTube video of their use of Google Wave, and its all that I thought that Google Wave could be used for. Here's the Video.

What the video doesn't show is the level of security being used and the location of the individuals. It is more then reasonable to assume these individuals are located at various different places and could theoretically be anywhere, and through a standard browser. It is also possible to provide the highest levels of security that are technically possible to those users, wherever they may be. And these attributes are well reflected in the video, but I have to argue the damage that a tool such as this would bring to any oil and gas company.

What is it that SAP is missing in terms of providing this solution? What we learned in the Preliminary Research Report was that change needed to be introduced in the proper fashion. Specifically the cognitive and motivational paradox are key issues that are not being addressed in SAP's use of Google Wave. The cognitive paradox identifies that people perceive the new with an understanding from the old. Taking the old and superimposing their understanding on the new is a danger in SAP's use of Google Wave. The motivational paradox recognizes that people are concerned more with production, or getting their job done, then learning the new methods or tools. These two paradox have been critical in the need to understand how change is introduced in the Draft Specification. Simply there has to be a clearly defined break from the old. A significant break in which the new can be approached in the manner that is somewhat a blank slate.

Change for the sake of change, is wrong. Particularly with SAP's use of a new technical tool. Technically driven change is a disaster in the making. That is why People, Ideas & Objects is basing these changes in the strong economic forces in today's depression. Orchestrating this level of change is not possible unless there is the type of economic reforms that people like Professor Carlota Perez speak of. The old dinosaur bureaucracies are failing, actively destroying shareholder value, and are leading to the renewal for new and innovative ideas and organizations. This opportunity is ours to take.

I see serious problems in allowing this type of powerful technology (The Google Wave application, not the SAP application) introduced without any support for the changes made. And more importantly without the full consent of the management or ownership of the firm. In this video they introduce a number of people who collaborate on a new process that does not have the requisite authority or responsibility to make any changes. Designing things because they can collaborate does not make it a valid process. In oil and gas I could take Google Wave and quickly write a new process that would involve the collaborations of any number of producers involved in a Joint Operating Committee. This would be dangerous and irresponsible, that SAP misses this point is of concern to me. This is also why the Draft Specification developed the Military Command & Control Metaphor.

Particularly for a publicly traded company, decisions and actions have to have a document-able audit trail, compliance and governance implemented and operational. When we think of a JOC we have multiple organizations legal, financial, operational decision making, cultural and communication frameworks. It is my opinion that allowing this type of application, of which many examples have been written about here, is irresponsible for the management to allow. I also have an opinion that management are not that interested in working that hard to stop this type of activity. Just as they do not go out of their way to be more proactive with respect to compliance or governance. As I said it is just irresponsible of management to "allow" this to happen, but chaos may be the better choice for them to make.

In oil and gas management's sole concern is the compliance and governance of the company. It is People, Ideas & Objects "design" to have the compliance and governance moved from the bureaucracy to align them with the legal, financial, operational decision making, communication and cultural frameworks of the Joint Operating Committee. As one learns in most MBA programs the separation of operational decision making and compliance leads to no accountability. This is managements to exploit in the current market. There motivation is to ensure they are not eliminated by having compliance and governance more accurately managed within the software.

We have also learned that the division of labor is the primary means of enabling economic growth. The video shows the influence of many different people involved in the process, however, it is more a matter of convenience that these people are motivated and the scope is based on expedience. When we consider the interactions of people through a JOC we have interactions that, if left to an ad-hoc development, would not provide the value that the appropriate analysis would bring. As I have frequently mentioned, the current oil and gas industry is populated with potentially thousands of different jobs as a result of the growth of the industry. Allowing poorly implemented technologies such as SAP is doing in the video can lead to a destruction of that division of labor for something that is not efficient. Leading to the chaos mentioned and presenting to all the kings horses and all the kings men, the never ending story of Humpty Dumpty.

We are entering a world where the tools are very sophisticated and capable of significant benefit to society, if used properly. We are also viewing the world from a high level of sophistication in terms of its economic order or division of labor. These are being altered without an appreciation or understanding of how fatal even a small decline might cause the company. Management should be concerned at what might happen when falling from these lofty heights. Making undocumented changes and not implementing the appropriate levels of compliance and governance is irresponsible, bordering on criminal. Managements have been able to disassociate themselves from the shareholders and investors by entrenching themselves in a rigid compliance framework. This is also why no one has ever been fired for recommending SAP.

Ah the things you can say when you've been ostracized for your ideas, truly liberating.

Technorati Tags: People's Perez Change Collaboration Development Economics Google

What about those prices.

Two conversations that are taking place are the relatively high oil, and the low natural gas prices. The opposite directions of oil and gas prices seems to be a result of the North American natural gas markets being satisfied by shale gas developments. What is the future of these prices.

It would seem to me that the economic developments and stimulus have done nothing to stem the depression we find ourselves in. The U.S. dollar is under attack and they seem not to be able to, or want to do anything to stop the decline. Those individuals that are holding U.S. bonds will soon realize the pain that was delivered to mortgage holders last year. As big as the mortgage market is, the size of the U.S. bond market will have as big and if not bigger dent's in the world economy. Hang on to your hats.

So the demand for energy may fall further, this is almost a guarantee as I see it. The two economic phenomenon that I have been banking on this past decade. The transition between the old to the new economy. And, the increasing difficulty for the bureaucracy to produce and explore for oil & gas. That I never put these two theories together, and predict that the prices would collapse shows how real life is always surprising.

So there we have it. The next step down in the economy is baked in the cake and the shock will hit the commodity markets, and the oil and gas prices will decline. The decline in prices will be sharp enough to bring great difficulty to the producers. We have moved to a high production cost environment. The management have hung their hats on the phenomenal earnings they made last year based on those higher prices. I wonder if they will take the blame as much as they took the credit for those spectacular results. Lets hope they do and are summarily fired as they should be.

What's driving these price declines. The inability of producers to be able to shut in production is causing the prices to collapse for the short to mid-term. Some producers have been able to shut in their 100% owned properties. Properties that have multiple owners are able to shut in production through the operational decision making framework of the Joint Operating Committee. The problem is that the ability to do so, in a material way, is constrained by the sheer numbers of JOC's and the contractual commitments of the producers. The conflict within the participants of the JOC is unable to be resolved because in essence, no one clearly identifies the JOC as the key organizational construct of the energy producer.

Why would the industry continue to produce at the volumes they are when these volumes are killing the prices. Shutting down of any future activity has been the very dull tool the industry has used to weather the storms. Not spending money on drilling more wells and facilities has been taking place now for almost two years. Earnings are in significant decline with not many companies showing a strong balance sheet or reserves. The traditional price-taker mentality is in full effect with no one seriously considering the necessary mechanisms to reduce the amount of product being brought on the market.

Continuous production of product in the face of such a dire forecast shows the need to have the systems and organizational structures of the industry rebuilt. Specifically around the JOC and with the systems I have described as the Draft Specification. I sought to resolve this problem by putting into place the necessary mechanisms for the Joint Operating Committee to determine at which price levels would trigger a 10% decrease, and if future declines needed another 10% decline in production, at what price level that would occur. Giving an automated means for the JOC to predetermine what is best for the property.

These conflicts and contradictions in oil and gas are are no longer able to meet the needs of the industry. Time has now come for the producers to act and support this software's development. Or, they can continue to watch the prices decline further and further and hope no one fires their buts. It has been well known for a very long period of time the energy price elasticity. Meaning that large price changes are brought about by small changes in production. Management I'm sure are hoping that these economic principles don't apply to them, and will wait it out to see if that is the case.

Continuing to muddle along as a corporate strategy is now putting the industry in serious jeopardy. Without the appropriate tools to manage the business, the management are damaging their shareholders investment and the industry capability. Leaving it in their hands is irresponsible in my mind, we should be building the software and community that will support the innovative oil and gas producer for the future.

Let me make it absolutely clear so that there will be no confusion. I have received no support and no funds from the industry for this project. Zero! In September 2003 I was ostracized and kicked to the curb when I first proposed these ideas to management. And laughed at by those perfect management teams since. It is not recommended that anyone should expect that operational code be written and waiting for companies to start using. What I have done since 2003 is complete the Preliminary Research Report. Researched the viability of a system based on the JOC. Based these ideas on an economic and academic foundation that total's over 700,000 words on this blog. And detailed a vision of what the systems would look like when the industry is using the JOC as the key organizational construct. The software development of that vision is what is needed to be done, and from scratch for lack of a better word. I have done everything humanly possible to make this vision real. It is not my fault that people will be disappointed with the progress of this project. Please join me here.

Technorati Tags: People's CISP Economics Development Change