Professor's Baldwin and von Hipple V

Part V of our review of Professor Baldwin's and von Hipple's working paper "Modelling a Paradigm Shift: From Producer Innovation to User and Open Collaboration Innovation." Lets assume for a moment the knowledge of how the oil and gas industry could be codified by 1,000 people. Much as the people are being organized and their contributions codified in the People, Ideas & Objects Preliminary Specification. Speaking prospectively, irrespective of the fact that these people are members of the Community of Independent Service Providers (CISP) and they earn their living through the contributions they make to the software, and their oil and gas producer clients. What's in it for them. Baldwin and von Hipple make the following point clear.

User innovators will choose to participate in an open collaborative innovation project if the increased communication cost each incurs by joining the project is more than offset by the value of designs obtained from others. To formalize this idea, assume that a large-scale innovation opportunity is perceived by a group of N communicating designers. As rational actors, each member of the group (indexed by i) will estimate the value of the large design and parse it into two subsets: (1) that part, valued at vsi, which the focal individual can complete himself at a reasonable cost (by definition, vsi > dsi); and (2) that part, valued at voi, which would be “nice to have”, but which he cannot complete at a reasonable cost given his skills and other sticky information on hand (by definition voi ≤ doi ).

Turning to the oil and gas producer, what's in it for them to support the People, Ideas & Objects developers and the associated CISP? Clearly the User innovations as Baldwin and von Hipple call them applies to the producer as well. They have access to a system that replicates any and all processes within the oil and gas industry. It's not that they need to have all those processes managed, but it is possible for them to run their firm in the most profitable manner by using People, Ideas & Objects and the CISP. The costs of the software are as little as a $1.00 per year per barrel of oil equivalent daily production. Yet they too are benefiting from these open collaborative innovations in the same manner the CISP is.

Consider finally the model of open collaborative innovation. Recall that open collaborative innovation projects involve users and others who share the work of generating a design and also reveal the outputs from their individual and collective design efforts openly for anyone to use. In such projects, some participants benefit from the design itself – directly in the case of users, indirectly in the case of suppliers or users of complements that are increased in value by that design. Each of these incurs the cost of doing some fraction of the work but obtains the value of the entire design, including additions and improvements generated by others. Other participants obtain private benefits such as learning, reputation, fun, etc that are not related to the project’s innovation outputs. For ease of exposition, we will derive the bounds of the model for user innovators first, and then consider the impact of other participants on those bounds.

Simple, but why has this not been done to date? Clearly the costs of collaboration on a large scale have dropped to minuscule levels. The Internet not only reduced the costs but also enabled these formerly disparate groups to associate with little to no costs. The only requirements to finding other groups of interested people is to Google the topics of your interest.

This is the first bound on the open collaborative innovation model. It establishes the importance of communication cost and technology for the viability of the open collaborative model of innovation. The lower the cost of communicating with the group, the lower the threshold other members’ contributions must meet to justify an attempt to collaborate. Higher communication costs affect inequality (5) in two ways: they increase the direct cost of contributing and they reduce the probability that others will reciprocate. It follows that if communication costs are high, an open collaborative project cannot get off the ground. But if communication costs are low for everyone, it is rational for each member of the group to contribute designs to the general pool and expect that others will contribute complementary designs or improve on his own design. This is in fact the pattern observed in successful open source projects and other forums of open collaborative innovation (Raymond, 1999; Franke and Shah, 2003; Baldwin et. al. 2006; Lakhani and von Hippel, 2009).

It would have been prohibitive, boring and frustrating to attempt the collaboration design of the Preliminary Specification without the Internet. Communication and design costs would have escalated to exorbitant amounts and the quality of the end product would be far less then the "open" collaboration design that Baldwin and von Hipple write about and is being employed by People, Ideas & Objects for this software development. There's more. As in this next quotation, the scope and scale of these designs can now be undertaken. The 2010 budget for the preliminary specification has been set at $10 million, yet the scope of the application is far greater then any other application designed in the oil and gas marketplace.

Note that this bound is N times greater than the bound on the design cost of the average single user innovator. Thus given low-enough costs of communication, open collaborative user innovators operating within a task-divisible and modular architecture can pursue much larger innovation opportunities than single user innovators acting alone.

The importance of this fact is how individuals should reconcile the ambition of this project to the reality of life. Building an application that uses the "industry" perspective through the JOC brings the scope to a frighteningly large level. The JOC is a generic organizational structure that is and can be populated by any number of changing numbers of producers and the people that work within the oil and gas industry. The use of the JOC in the Draft Specification is what demands open collaborative innovation design. Critical to making this an operational possibility is the ability of the Preliminary Specification to implement the Draft Specifications Military Command & Control Metaphor as a key cornerstone of the Compliance & Governance module.

But if communication costs are low enough to clear these hurdles, then the second bound [(6) and (6’)] shows that, using a modular design architecture as a means of coordinating their work, a collaborative group can develop an innovative design that is many times larger in scale than any single member of the group could manage alone.

Figure 3 in the paper shows that the Open Collaboration Innovation is able to approach a far higher level of design sophistication then the Producer Innovators. At no time before has this level of design sophistication been possible nor has the scope and scale been so (relatively) easy to approach. Producers and Users, and particularly members of the Community of Independent Service Providers stand to gain substantially from their contributions to this project. The overall design is comprehensive and ambitious. Today's technologies, and particularly the Internet, enable the type of systems design that the Draft and Preliminary Specifications involve. And although I don't think I mentioned the last two phases of the design publicly before. Now would be a good time to note that the Preliminary Specification will be used in a similar manner to the Detailed and Final Specifications. (Please note with a lag of six months the Detailed Specification can be completed concurrently to the Preliminary Specification.) The costs, which are budgeted at $10 million for the Preliminary Specification are negligible. To participate in these development as a supporting producer please follow our Funding Policies and Procedures here. And if you want to participate as a User or a member of the Community of Independent Service Providers please join us here.

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Professor's Baldwin and von Hipple IV B

In this entry I will highlight many pertinent points of Baldwin and von Hipple's research. Much of the context and content of their work is new, and as they state, not necessarily covered before.

However, to our knowledge, there has been no systematic thinking about the conditions under which each model is likely to appear, and whether each is expanding or contracting relative to the other two. To make progress on these question, it is necessaryto develop a theoretical framework that locates all three models in a more general space of attributes. That is our aim in this section.

People, Ideas & Objects is based on open collaborative innovation. Based on the modular Draft Specification as its starting point, the contributions of users is necessary to cover the scope of work undertaken in the oil and gas industry. This scope of work has never previously been undertaken due to the communication and design costs prior to the Internet were prohibitive. Only today with the Internet and the tools that are available can we seek to codify the understanding of "what" and "how" the oil and gas industry operates as. This codification is being captured here in the Preliminary Specification that will form the basis of the People, Ideas & Objects application modules. It is the technology that is enabling this to be undertaken. Use of the Joint Operating Committee was the hypothesis of this projects in the May 2004 Preliminary Research Report, and is therefore, the underlying reason that this project holds the promise of "resolving every administrative problem in oil and gas in the last fifty years." (Not my words.) It is the "aha" moment that people have when they realize the Joint Operating Committee is the key to enabling these performance and innovation based opportunities.

In the particular branch we are most concerned with, organizational forms and industry structures are taken to be endogenous and historically contingent (Chandler, 1962, 1977; Wlliamson, 1985, 1991; Nelson and Winter, 1982; Aoki, 1984, 2001; Langlois, 1986a, 2002; Baldwin and Clark 2000; Jacobies, 2005). Different forms may be selected to suit different environments and then adaptively modified. Thus organizational forms emerge in history and recede as technologies and preferences change.

I highlight the last sentence of that quotation as we are now at the point where changes can be implemented. Our economic challenges today require us to undertake these types of organizational changes. What has brought us to this point is no longer capable of carrying us further. And indeed we will fall further behind if these organizational changes are not implemented in a timely manner. For the Community of Independent Service Providers (CISP) it is important to become involved in this project as its sustainability is represented in the fact that organizational forms do not change that frequently.

We have seen the 20th Century benefit from the work done by the hierarchy. Clearly society is better off today then if we had not had the model of organization we use so systemically in business today. We have also benefited from the use of computer technologies that have enabled the reach of the hierarchy to span far greater then previously possible. This is where the oil and gas industry became too focused on the hierarchy as opposed to the Joint Operating Committee. As companies employed greater levels of Information Technology, they began to focus on internal needs of the bureaucracy and avoided the business of the business as represented in the many Joint Operating Committee's of the firm. To address those JOC's it would have required to undertake the design that is being done in its first iteration in the Preliminary Specification. Baldwin and von Hipple note that the design costs and communication costs would be too great to overcome in any time prior to the Internet. Now these costs are substantially below 1/3 of 1% of the industry. Viable by any measure.

Finally in contrast to virtually all prior work except for Chandler (1962, 1977), we take an explicitly technological approach to the question of viability. Fundamentally we assume that in a free economy, the organizational forms that survive are ones with benefits exceeding their costs (Fama and Jensen, 1983a, b). Costs in turn are determined by technology and change over time.

Costs as represented by this projects Business Model are minuscule when compared to the revenue streams of the oil and gas industry.

Adopting Chandler's logic, we should expect a particular organizational form to be prevalent when its technologically determined costs are low, and to be ascendant - i.e., growing relative to other forms - when its costs are declining relative to the costs of other forms.

Today, design costs and communication costs are declining rapidly, and modular design architectures are becoming common for many products. In the rest of this section, we argue that these largely exogenous technological trends make single user innovation and especially open collaborative innovation viable across a wider range of innovation activities than was the case before the arrival of technologies such as personal computers and the Internet. We have seen and expect to continue to see, single user innovation and open collaborative innovation growing in importance relative to producer innovation in most sectors of the economy. We do not believe that producer innovation will disappear, but we do expect it to become less pervasive and ubiquitous than was the case during most of the 20th century.

To participate in this community, please join me here. And if you are part of our targeted market, please contact me here to financially support this community.

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Professor's Baldwin and von Hipple IV A

Before the Christmas break we were reviewing a paper from Professor's Carliss Baldwin and Eric von Hipple. Our review was comprehensive as the majority of the material is pertinent to both the development of People, Ideas & Objects software and associated Community of Independent Service Providers, (CISP) and the innovative oil and gas producer. The title of the paper "Modelling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation". To date there are three blog posts reviewing this paper here, here and here. Reintroducing this work by reviewing the three posts, re-highlighting the papers abstract, and finally adding some of the papers definitions will help refresh our memory of this very pertinent work.

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.

We see the value that this paper has to this community, not only in defining how this community operates, but also the validity for the CISP participants investing their careers, and how the innovative oil and gas producer can approach the scope of their organizational constraints. I expect to have the next installment of this paper completed within the next week. This involves the review of their analysis of the three different models of innovation, or section 3 "Where is each model viable."

It may also be of value to review our 2010 budget to see how the user within the CISP generates their own economic value. They are compensated for their work in designing and contributing to the development of the software. And secondly, their use of the finished software application is available to them as members of the CISP, free of charge. Their use of the software is part of the value adding services they provide to their innovative oil and gas clients. People, Ideas & Objects generates our Fees and Penalties from the producers that benefit from this software. These charges are assessed based on our business model.

Baldwin & von Hipple's Definitions

A single use innovator is a single firm or individual that creates an innovation in order to use it.

A producer innovator is a single, non-collaborating firm.

An open collaborative innovation project involves contributors who share the work of generating a design and also reveal the outputs from their individuals and collective design efforts openly for anyone to use. The defining properties of this model are twofold: (1) the participants are not rivals with respect to the innovative design (otherwise they would not collaborate) and (2) they do not individually or collectively plan to sell products or services incorporating the innovation or intellectual property rights related to it. An example of such a project is an open source software project.

A design is a set of instructions that specify how to produce a novel product or service.

A given mode of innovation is viable with respect to a particular innovation opportunity if the innovator or each participant in a group of innovators finds it worthwhile to incur the requisite costs to gain the anticipated value of the innovation. By focusing on anticipated benefits and costs we assume that potential innovators are rational actors who can forecast the likely effects of their design effort and choose whether or not to expend the effort (Simon, 1981; Langlois, 1986b; Jensen and Meckling, 1994; Scott, 2001).

Our definitions of viability is related to: the contracting view of economic organizations; to the concept of solvency in finance; and to the concept of equilibrium in institutional game theory.

In contracting literature, firms and other organizations are viewed as a "nexus of contracts,", that is, a set of voluntary agreements (Alchian and Demsetz, 1972; Jensen and Meckling, 1976; Fama and Jensen, 1983a, b; Demsetz, 1988; Hart, 1995). For the firm or organization to continue in existence, each party must perceive himself or herself to be better off with the contracting relationship than outside of it.

We define an innovation opportunity as the opportunity to create a new design. With respect to a particular innovation opportunity, each of the three models of innovation may be viable or not, depending on the benefits and costs flowing to the actors.

In terms of benefits, we define the value of an innovation, V, as the benefit that a party expects to gain from converting an innovation opportunity into a new design - the recipe - and then turning the design into a useful product, process or service.

Each innovation opportunity has four generic costs: design cost, communication cost, production cost and transaction cost.

Design cost, d, is the cost of creating the design for an innovation.

1. The cost of identifying the functional requirements (that is, what the design is supposed to do); 
2. The cost of dividing the overall problem into sub-problems, which can be solved separately;
3. The cost of solving the sub-problems;
4. the cost of recombining the sub-problems' solutions into a functioning whole.
   

Communication cost, c, is the cost of transferring design related information among participants in different organizations during the design process.

Production cost, u, is the cost of carrying out the design instructions to produce the specified good or service.

Transaction cost, t, is the cost of establishing property rights and engaging in compensated exchanges of property.

Please join us here.

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2010 Budget and Planning

As promised the 2010 Budget and Plans are set. This post will highlight the aspects of "what" and "how" this is being undertaken. Further discussion is encouraged by contacting me by email or the "Call Me" feature on the bottom left column of this blog.

First off is the objectives for 2010. Completion of the Preliminary Specification was mentioned yesterday. The Preliminary Specification is a collaboration of the end user community. It's cost is based on 100 "People" years of effort and will determine two key components; the scope of the application modules and the detailed analysis of the oil and gas business in a comprehensive, codified manner. The two constraints placed on this development are they must use the Draft Specification as it's starting point and be focused exclusively on the business of oil and gas. Technology is not part of this specifications deliverable. The only technological requirement will be the generation of stories in line with the agile manifesto.

We seek to capture the ways and means of the optimal innovative oil and gas producer in the Preliminary Specification. The understanding of the industry is beyond the scope of a handful of contributors and involves multiple disciplines. The collaborative output of the Preliminary Specification will be well beyond the scope of one individuals understanding of the industry. Therefore clarification and compromise will be a necessary and difficult part of the process. Using advanced business techniques focused on the conflicts and contradictions that arise, the output will resolve many of the issues within the industry and its application to the Draft Specification. This is a business design process that will involve literally everyone and anyone with experience and understanding of the oil and gas industry. More specifically it is a place where people can contribute their ideas and build their own service based offering in support of the innovative oil and gas producer and users of the developing People, Ideas & Objects software.

Contributors to the Preliminary Specification are invited to join this development through this process. Users will be compensated for their contributions. I have allocated an average $125.00 U.S. / hour for user contributions. Each of the 100 People years is determined on an eight hour day and 220 days per year. 30% of the $10 million budget is allocated to users. The total population of users may possibly number in the thousands of individuals. This will not be a full time task for any of users, and it is anticipated that no one would be required to leave their current positions in order to contribute to these developments. Subscribing producers are encouraged to second their human resources to this process in order to ensure their unique business needs are met by the Community of Independent Service Providers and the software itself.

Additional financial resources are budgeted in the support of this developing community. Maintenance of the private wiki where these postings will reside, in addition to the multitude of other support requirements; requires we allocate an equal amount of resources to support the community. The remaining 40% of our budget is allocated to overhead, organizational development, preparation & testing of the technological architecture, and the software configurations themselves.

As indicated the time frame for completion of this critical community development and specification delivery is the end of the 2010 calendar year. The determination that 100 People years is adequate is a judgment call made based on my experience and understanding of the oil and gas industry. I anticipate that towards the end of 2010 we may be consuming as much as one People year with each day of development.

As always, please join us here.

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2010 Funding Policies and Procedure

Establishing 2010 as the year that this project stops the passage of time without consequence. We have a problem in oil and gas. That problems definition, size and scope is generally understood and agreed to. The current oil and gas companies organization models are unable to meet our needs and they are certainly not positioned to address our future. And by "our" future it is intended to define societies future. For this reason we need to move to begin the development of the Preliminary Specification, and have it completed in 2010. The next blog post will document the budget and planning necessary for this to occur. Key to attaining these goals is the scope of the effort has been determined to be 100 "People" years. People years is the same as the gendered "man" years in defining what the effort is. With statement of these goals it is necessary that we create the mechanisms to raise this money.

The budget will also document that the 2010 capital requirements total $10 million. By stating this it shows the serious nature of properly identifying the user community. The May 2004 Preliminary Research Report documents the issues the oil and gas industry is currently facing. The document also establishes the accuracy of the research that has been conducted in this weblog. Now that management of the oil and gas companies understand these issues, they should also understand the need to act.

Therefore I want to reiterate that the targets for funding these developments are primarily to the shareholders and oil and gas investors. They are the ones that have been adversely affected by managements co-opting the governance frameworks to better secure their existence. Clearly investors want and need an alternative governance and organizational method to build and manage their oil and gas assets. People, Ideas & Objects makes these changes in the Compliance & Governance Module of the Draft Specification. Our secondary markets are the National Oil Companies like Pemex, Petronas and Saudi Aramco. Quasi governments and corporations who hold the dual role of managing their countries oil and gas resources. Lastly our openness of communications enable the International Oil Companies and Independent producers to contact us and participate. The benefit in being part of this development is to have their unique organizational needs met by the software being built, and the CISP's service based offerings. Lastly Start-ups, primarily due to their lack of any substantial production, are also welcomed to this development.

Fees for 2010 have been set at $1.00 / BOE / Day. (A producer that produces 50,000 / boe / day would be assessed $50,000 for 2010). These fees are due and payable on or before March 31, 2010. Invoices will not be provided outside of this blog post. We are also establishing a Penalty component as follows: 1) Penalties are assessed on March 31 of the current year. Penalties are 300% of the years fees. 2) Any participant to this development will need to make up any and all Fees and Penalties back to January 1, 2010. Therefore if a producer joins in 2012, they will need to pay the Fees and Penalties of 2010, 2011 and 2012 before they would be entitled to participate in these communities, developments, or use of the software. Choosing to wait to join this development will preclude the communities and developments ability to cater to the producers needs. As time passes the inertia of these developments will make it progressively more difficult for one firm to address the scope of their development needs. 

The Business Model of People, Ideas & Objects provides substantial value to our subscribing producer firms. The basis of these developments uses the cost - plus model. Where these costs are amortized over the participating producers, once. Our objective, and that of the Community of Independent Service Providers (CISP) is to provide the innovative oil and gas producer with the most profitable means of oil and gas exploration and production.

Management may want to sit back and continue to belittle this process. Noting that it doesn't have this and hasn't got that. That it is a start-up with no proven record of delivering any commercial software. If the research, business model, user focus, using the Joint Operating Committee as the key organizational construct, and our understanding of the oil and gas industry from a business point of view doesn't sell you, nothing will. Our competitors will be far better at selling you the next great technology that comically brings you closer to your customers.

To participate please contact me at this email or call me by selecting the "Call Me" service on the bottom of the left hand column. And for those individuals interested in joining, please join us here.

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2009 Year in Review

Starting off 2010 it's important to highlight some of the 2009 developments of this project. 2009 was our first full year of community development. It is clear that using the Joint Operating Committee resonates with many of those who work in oil and gas. Through analysis of the numbers of subscribers to this blogs feed. Shows the community is large and engaged with the content. Another point that is clear is the risk of being seen to be active and committing to this process. We are well aware of the consequences of being too early and too closely affiliated with these ideas. Management of the oil and gas companies want nothing to do with this development, or with the people associated with it. Keeping the community anonymous, in addition to its further development is our number one priority for 2010.

Our second priority for 2010 is to secure our budget and implement our plans for the development of the Preliminary Specification. The budget and plan will be posted here in the next few days. Securing the financial resources to proceed with tangible developments is necessary for further community development.

Highlights of the past year.

• A general understanding the issues in oil and gas production and exploration are substantial. Over the next 20 years, companies such as Exxon, have quantified the scope of these issues as being an additional $20 trillion. This requires a different approach.
  
• Oracle Corporation released their Oracle Fusion product offering. Oracle's activities in this area have been an unknown in the oil and gas ERP marketplace. This unknown has had the effect of freezing the decision making process of producers. Two things stand out in Oracle's offering. One is Oracle's comical desire for the oil and gas producer to get closer to it's customers. And possibly fatally, Oracle has spent $39 billion in capital in the Fusion investment. Both of these points show that Oracle needs further development to meet the needs of the innovative oil and gas producer.
  
• Professor Oliver Williamson's winning of the 2009 Nobel Prize in Economics. Much of the Draft Specification uses the theories and ideas of Williamson and others. I find the awarding of the prize brings substantial credibility to the Draft Specification, and hence to it's community of users.
• Clarification and confirmation of the targeted market for these software applications and communities services. Through the development of this community it has become clear that the software offerings and services appeal to International Oil Companies (IOC's), National Oil Companies (NOC's), Independent Oil and Gas Companies and Start-up producer firms.

People, Ideas & Objects future is bright. We understand that people who are interested in joining this Community might only be able to contribute a few hours per week, so please join us here.

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Our tradition with Ralph Waldo Emerson

It is that time again to review my favorite author and share a specifc article of his works. This also marks the fourth full year of posting on this blog.

This year I have selected Emerson's first book "Nature" as this years reading. As with all of his works I find his writing inspiring and more topical today. Nature does not disappoint. Enjoy!

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Professor Paul Romer, Endogenous Technical Change

We are in the middle of a comprehensive review of Professor's Carliss Baldwin and Eric von Hipple new working paper "Modelling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation". In the last post we learned that innovation within the community of People, Ideas & Objects is considered "a non-rival good: each participant in a collaborative effort gets the value of the whole design, but incurs only a fraction of the design cost." Music to my ears and a definitive benefit when a user considers their potential involvement in this community.

In a related document, Professor Paul Romer's October 1990 "Endogenous Technical Change"  discusses the impact of these non-rival goods impact on economic growth.

Growth in this model is driven by technological change that arises from international investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input it that it is neither a conventional good nor a public good; it is a non-rival, partiallyexcludable good.

These non-rival goods are being codified in the Draft Specification and developed by this community in the Preliminary Specification. The community will also develop their value adding service offerings, to be used with the People, Ideas & Objects software applications they've developed, in providing their producer clients with the most profitable means of oil and gas operations. I'd like to see Oracle compete with that.

What I want to highlight is Professor Romer's note that mankind's progress was constrained for a long period of time. Not until we were able to rise above the grind of working for our basic needs did we move forward.

This result offers one possible way to explain the wide variation in growth rates observed among countries and the fact that in some countries growth in income percapita has been close to zero. This explanation is reminiscent of the explanation for the absence of growth in prehistoric time that is offered by some historians and anthropologists: civilization, and hence growth, could not begin until human capital could be spared from the production of goods for immediate consumption.

Taken in this context it is clear to me that the community and these software applications have the capacity to significantly increase the productivity of the oil and gas producer. Our way of economic organizations have brought us to the point where we are today. To move forward in the future we need to revisit the ways in which we conduct business. And that is my desire for the oil and gas industry with this blog, software and communities development. What Romer has to state on this point is clearly beneficial for all concerned.

The most interesting positive implication of the model is that an economy with a large stock of human capital will experience faster growth. This finding suggests that free international trade can act to speed up growth. It also suggests a way to understand what it is about developed economies in the twentieth century that permitted rates of growth of income percapita that are unprecedented in history.

We stand on the shoulders of giants and begin a process of such great potential. Please join me here in 2010.

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McKinsey, Strategy Through Turbulence

I can not reflect on the past four years on this blog without closing out the year by noting the significant contribution that McKinsey Consulting have provided us. This is the 64th article that I have written about here on this blog. And more then just the numbers, the topical nature and focus on the changing business times that we find ourselves in. They have done a great service to their clients and I think they have established themselves as the number one consulting firm for the twenty-first century.

This article is a brief eight minute video that summarizes everything that we stand for here at People, Ideas & Objects. The opportunities, turmoil and change are all themes that underlie the research and system specifications. It is of Professor Don Sull of the London Business School. Who talks clearly about the times we face. He also has a new book that I would recommend putting on your reading list as well. Enjoy!

(Embedded video may not render, please see the original McKinsey site.)



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Data and the Military

People, Ideas & Objects have define a Technical Vision that identifies and works to mitigate a technical issue that all areas of society need to address. The issue is the ballooning of data. Noted in National Defence Magazine an article entitled "Military Swimming in Sensors and Drowing in Data" it is stated “The appetite never seems to slow down.” As the energy industry is mostly based on the science of physics, chemistry and biology, it is believed this data growth will fuel innovative use and application in the industry. Those firms that have the capacity and ability to deal with this volume of data will have competitive and financial benefits arise from this capability, but only if this software development and community are funded.

The Community of Independent Service Providers and People, Ideas & Objects - Technical Vision suggests four cornerstone technologies enable this data explosion. At the same time, these technologies provide the ability to deal with the problem / opportunity. The four technologies are;

1. Object based technologies, and particularly Java.
2. Asynchronous Process Management.
3. IPv6
4. Wireless.

Further information on the Technical Vision can be found here.

Today's blog of Richard Fernandez notes this issue is affecting the U.S. Military. And of particular concern, is today's Wall Street Journal video of how Predator Drones have been monitored by insurgents. (If that specific URL doesn't work, search WSJ's video site for Predator Drones.) This issue of the Predator Drones is also noted in Fernandez's second blog post.

Some may note "This explosion of data has occurred for the better part of the last 40 years. Computers have always presented this difficulty and the energy industry will address this problem as it has before." I hope not, because the volume of data and the ability to use that data are something that will have to be purpose built and dynamic. What can be monitored can also be controlled.

People, Ideas & Objects has listed this Technical Vision as the manner in which this community will approach the problem. By exploiting the advantages and having the commercial benefits accrue to those that have a handle on them, I think, will be the difference between success and failure in the oil and gas industry. Critical to the success of the oil and gas producer will be this change oriented and innovation supporting community and application.

The Draft Specification considers a scenario where the use of this type of data and the ability to manage it is possible in a fundamentally more profitable way. The example is the manner in which energy prices can dictate, on a pre-determined and agreed too basis, at what price level would trigger the production was scaled back. If prices were to drop a predetermined percentage, then the production would be autonomously scaled back by X%. And these decisions could be executed on an iterative basis to fully exploit the reserves of the specific Joint Operating Committee (JOC).

These are business decisions that can be made by the Joint Operating Committee as it holds the legal and operational decision making control of the reserves underlying the property in question. (And something today's bureaucracies can not even begin to consider.) If the JOC has the authority, and the legal agreements consider this opportunity, then the industry can move from a price-taker to a price-maker position. This last point should be coming more evident as a necessity in the industry. Leaving everything to produce at 100% and then watch the prices drop year after year must get a little tiring. Only a fool would continue to sell his resources at a price less then its cost. And in an escalating cost environment, we have many managers who know they do not have the tools to deal with this problem, and yet will not support this software development project and associated community.

If it is generally agreed by the producers that an additional $20 trillion will be spent on oil and gas operations in the next 20 years. I would suggest the producers attain these types of capabilities so that they can prove to their shareholders they have the capabilities to address these difficulties and profit from them. Or is it really assumed that the bureaucracies can exist in that prospective environment, and provide returns to those outside of their own management team. Please join me here.

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