OUR PRELIMINARY SPECIFICATION MAKES SHALE COMMERCIAL. THROUGH AN INNOVATIVE BUSINESS MODEL SUPPORTING THE JOINT OPERATING COMMITTEE, WE PROVIDE OIL AND GAS ASSETS WITH THE MOST PROFITABLE MEANS OF OIL AND GAS OPERATIONS, EVERYWHERE AND ALWAYS. ENABLING THEM TO ACHIEVE ACCOUNTABLE AND PROFITABLE NORTH AMERICAN ENERGY INDEPENDENCE.
OIL AND GAS’ VALUE PROPOSITION IS AT A MINIMUM, LEVERAGED TO THE POINT OF 10,000 MAN HOURS PER BOE. WE KNOW WE CAN, AND WE KNOW HOW TO MAKE MONEY IN THIS BUSINESS.
In summarizing the eight compelling reasons for getting involved in this project.
The first compelling reason is, oil and gas has moved into a more complex and difficult environment(s). Technically, financially, politically and logistically to name just a few. These environments require producers to make more decisions, and the companies can not keep up. Review a firms Reserve Life Index and you will see the extent of this problem. Exxon has valued this increased complexity at an increment of $1 trillion more in capital expenditures per year over the next 20 years. Let be me clear, I want Exxon to fully participate in these developments.
The second is the response of the ERP vendors. There is a storied history between SAP and the industry & Oracle and the industry. Not a lot of love there. Such that, any opportunity to address the above point, People, Ideas & Objects, thankfully for the Community of Independent Service Providers (CISP), is the only solution. If the others can't see the problem, then they'll only waste money in building a solution. Oh wait, Oracle has already spent $39 billion in research and acquisition costs in bringing Oracle Fusion to market. If you want your company to be the one that keeps Oracle's return on investment positive, I wish you the best.
Third, much of People, Ideas & Objects extensive research that went into the Draft Specification was based on Professor's Williamson's, Langlois' and Baldwin's research in Transaction Cost Economics. This critical area of research earned Professor Oliver Williamson the 2009 Nobel Prize in Economics. Showing that the Draft Specification has a basis in strong academic research. This grounding in leading edge research is the foundation of which the users and CISP will use to design the Preliminary Specification.
Fourth, since the economy did not tank and we can build on what remains. Academics have turned to organizations, technology and innovation as their key areas of research. This will have substantial benefits to the user community and Community of Independent Service Providers involved in People, Ideas & Objects software applications.
These compelling reasons are being marketed to the investors and shareholders of the producer firms. They are the ones that are being called upon to fund, or direct their oil and gas companies to fund, our 2010 $10 million budget for the beginnings of the Preliminary Specification. The user community needs to see the commitment of the producers to begin to step up in this difficult and opportune time. I also expect Shell, BP, Chevron, Total, Devon, Chesapeake, Saudi-Aramco, Pemex, and Petronas, to name just a few, to contribute to the 2010 budget and the future requirements. They can't play in the game if they don't pay the fee to get into the ball park. That is to say, the benefits to producers is getting involved early and often. Making organizational change requires that the software gets built first, otherwise the existing sophistication in terms of division of labor, the complexity and capability of the markets will be lost. Not everyone will be able to join us, I expect the laggards are too busy with their problems, which will only lead to their unfortunate demise.
A sixth point is the compelling value proposition provided to the user community and the producers themselves in this software development project.
Seventh, I recently had the opportunity to detail a gaping whole in the Draft Specification, the User Vision. I am pleased that I can forcefully put these points across and not be belittled by managements perception that it's a toy. Professor Orlikowski's research came at an opportune time to build real value to this project and fill out our previously un-spoken user-vision of the People, Ideas & Objects application modules.
I recently noted two new papers from Professor Carlota Perez are to be reviewed in the very near future. What is stated in those papers is that the real value of the Information Technology Revolution is about to begin in earnest. This trend is expected to continue for the next 20 years and provide a ground floor business opportunity for our CISP, and, subscribing producers.
If your a producer that wants to benefit from these developments, and support the team financially, please review our Funding Policies & Procedures. Or your a user that wants to contribute to these developments, please join us here.
A recent post suggested that there was a hesitancy in detailing too much about the user interface to be used in the People, Ideas & Objects application modules. Firstly, this design process that we are undertaking in the Preliminary Specification is about the oil and gas business, not about the new(er) technologies that have been developed. And this post is not so much about the technologies but how the user will interact with the modules being developed here. The interface, as Apple & Google have shown us time and again, is the critical piece in how people use their technologies. [Please stay with me for the full post as this requires some reader faith.]
Back in the dot com bubble much was made of the "Exchanges" that were being built. The market cap for these companies were in the billions and they would prosper through building the technology to facilitate exchanges of documents etc. Thankfully that era ended and we never saw these technologies get picked up. However, today the concept of exchanges is developing again. And they will fail. That is why they do not appear anywhere in the Draft Specification. What does appear are Marketplaces. Places where the people and technology live together in perfect harmony. Creative license is a treasure.
The hesitancy in posting about this is due to the fact that I see the People, Ideas & Objects user interface being exactly like the World ofWarcraft (WoW) user interface. Now that the non-believers have left we can speak to the advantages of this. If you've never seen WoW ask a teenager, actually any teenager, to look at their version of the game. It's brilliant. Note how the environmental variables, and pretty much anything can be accessed through small groupings of control panels. Each provides the user with the control needed to operate the game.
and
Just search YouTube for World of Warcraft and you'll be able to see the analogy I am trying to make here. Professor Wanda Orlikowski defines a term in her paper "Synthetic Worlds". In the Draft Specification there are at least four "Synthetic Worlds" that I want to quickly mention.
Any and all Joint Operating Committees oil and gas assets.
Each of these are Synthetic Worlds populated with the User defined environment. Each facility or oil and gas property is populated with a virtual representation. If a rig was drilling a new well, then the Synthetic World would emulate the actual activities on the rig. [Look to the Technical Vision of this project to understand how that happens.] Importantly, the interactions between people and their avatars, and other avatars, are supported by the design elements that can negotiate a contract, and design a transaction to have a fracing company come in and double the number of horizontal fracs based on what was discovered down hole.
The Petroleum Lease Marketplace might appear like an old "exchange" [bad word] where people are buying and selling. But in this instance it's oil and gas leases. And maybe their not buying or selling but pooling their interests with their neighbors to ensure they get approved for the gas plant they want to build. A producer may be selling off it's none core assets. A young engineer is looking for support to fund his dream of turning the Basal Quartz into the most prolific zone ever. These, all being in real time with people in the marketplace.
The Financial Marketplace module will handle the financial resources of the producers. If you don't like the billing you received from the previously mentionedfracing company, engage them in a virtual private meeting regarding resolution. Interestingly so, since were emulating real life virtually, we are also recording it, making it easy for the producer to show why thefracing costs are incorrectly billed.
The Resource Marketplace module where an oil and gas producer can find any type of service operation from the Community of Independent Service Providers, the service sector vendors like the fracing company mentioned, the employees the firms want to hire. All provided in a Synthetic World.
Now that I have provided full and complete certainty to my detractors, is this possible? Here we have Dr. Eric Schmidt who was the president of Sun Microsystems at one time, also CEO ofNovell at one time and has been the CEO of Google for the past 10 years has to say about Synthetic Worlds.
Everything in the future online is going to look like a multi-player game,” said Schmidt to this international audience. “If I were 15 years old, that’s what I would be doing right now.
In answer to those questions is it possible? Please refer back to the videos earlier. That rich of an environment has been in the game players world for the past number of years. Critically here is where Professor WandaOrlikowski pick up her research. Note that her discussion is based on the Sun Microsystems "Java" (imagine that) environment known as Project Wonderland. An "Open Source" (imagine that) development framework for business' to implement these technologies. Please see the Sun research documents here, here and here. And watch this video of Project Wonderland.
Before we get to Professor Orlikowski research I want to put one more critical aspect of the Draft Specification into play. The Military Command & Control Metaphor is a critical aspect of the Compliance & Governance Module and how things can work in the appropriate business sense. To suggest that anyone and everyone have access to a game players type of situation is ridiculous. The need to implement a key part of the organizations compliance and governance needs to be available. When we add that the JOC is representative of many producers we add an element that makes this scenario of a Synthetic World impossible. Add the layering of the Security & Access Control Module and the Military Command & Control Module in the Draft Specification, the problem is solved. The only requirement that I think we need to add is a means to visually identify the appropriate role and rank of each individual in the Synthetic World. [I'm thinking Star Trek Shirts with different colors and badges, oops there's my detractors again.] So that the representative from the fracing company can see that the avatar of the individual he is negotiating the contract with does have the authority to execute on behalf of the producer and the JOC.
One more paragraph and were at Professor Orlikowski's research. John Hagel posted an entry on how relationships and dynamics in the work place. His comments add another perspective to the discussion.
Drawing on a specific scenario from a contemporary workplace, I review some of the dominant ways that management scholars have addressed technology over the past five decades. I will demonstrate that while materiality is an integral aspect of organizational actively, it has either been ignored by management research or investigated through an ontology of separateness that cannot account for the multiple and dynamic ways in which the social and the material areconstitutively entangled in everyday life. I will end by pointing to some possible alternative perspectives that may have the potential to help management scholars take seriously the distributed and complexsociomaterial configurations that form and perform contemporary organizations.
Commenting on the scenario that is best represented in the last YouTube video above, Orlikowski states:
A normal day at the office for a software development team? Not quite. I have omitted an important detail. The Project Wonderland rooms, offices screens, and documents are part of an online, three-dimensional,immersive environment for workplace collaboration within Sun Microsystems, known as MPK 20. Within this graphically intensive virtual workplace, users interact in real time using audio, text and images, and they share applications and content from a variety of online sources.
In answer to the many of Professor Orlikowski's questions; people use marketplaces for everything. The marketplace is the boiling pot of research into the capitalist system. A system of organization and activity that everyone subscribes to.
The use of synthetic worlds for organizational activities such as distributed collaboration raises interesting questions for scholars -- how to make sense of a study of these in management research? What are some existing perspectives that might usefully be drawn on to do so? What new or alternative perspectives might be more relevant? What are the implications of choosing certain perspectives over others in accounting for and articulating particular issues and insights?
2. Established perspectives on technology in management research
Professor Anthony Giddens Structuration Theory was used in the preliminary research report. His theory identifies that People, Organizations and Society move in lock step with one another. If there is a difference in the pace of change of these three elements, a failure occurs. As I indicated in a recent post, ProfessorOrlikowski "Structurational Model of Technology" was used in the Preliminary Research Report to determine that society and technology are linked by "the duality of technology" and the "interpretive flexibility of technology". Please see the Preliminary Research Report for further application to the energy industry. The majority of Professor Orlikowski's work has been in these areas.
Three distinctive conceptual positions on technology are clearly evident in the management literature of the past few decades. In the first perspective, which I will characterize as absent presence, technology is essentially unacknowledged by organizational researchers and thus unaccounted for in their studies. In the second perspective, technology is posited to be an exogenous force -- a powerful driver of history having determinate impacts on organizational life. The third perspective, that of emergent process, technology is positioned as a product of ongoing human interpretations and interactions, and thus as contextually and historically contingent.
The value she has created with her ideas is in this fourth perspective of technology. What she in essence says is that dealing with organizations and technologies as separates, management research has to deal with them as one. This is the area of research that the Preliminary Research Report was able to determine that to change organizations, the technology or ERP system should be designed and built to identify and support the Joint Operating Committee. It is also the area where the management of the oil and gas companies, my detractors if you will, have used these ideas against themselves. Suggesting that they would not be challenged in their positions if the technology never changed. These ideas and their implication provide the support I need to appeal to the shareholders and investors in oil and gas to take thisperversion of Professor Orlikowski's work away from the management and eliminate them.
Recently, a fourth perspective of technology -- that of entanglement in practice -- has attracted interest within management research, largely influenced by longer-standing development in sociology and science and technology studies (Barad, 2003; Latour, 2005; Suchman, 2007). As I will describe below, this alternative perspective entails a commitment to a relational ontology that undercuts the dualism that has characterized but also limited much of the prior technology research in management studies. In particular, this perspective offers the potential to radically re-conceptualize our notions of technology and reconfigure our understandings of contemporary organizational life.
I believe it is very clear that the threat to management by technology has been significant and it is human nature for them to resist. I think the Project Wonderland, People, Ideas & Objects marketplace models and the many other supporting conditions prove that the technology will eliminate management. And it is the responsibility of people and society to ensure that organizations change to ensure they do not continue to hold everything back.
5. Conclusion
Professor Orlikowski sees the aberrant way in which management have approached technology. In her conclusion she intimates that management will continue to forestall the adoption of further research.
Confronted with synthetic worlds, these researchers will in all probability focus their attention elsewhere. And this choice has consequences for the value of organizational scholarship: "to the extent that the management literature continues to overlook the ways in which organizing is critically bound up with material forms and spaces, our understanding of organizational life will remain limited at best, and misleading at worst' (Orlikowski and Scott, 2008, p. 466).
Orlikowski shows us the way's and means to implement these technologies.
They will conclude, as I do here, by suggesting that the perspective of entanglement may be particularly useful for management research going forward. As contemporary forms of technology and organizing are increasingly understood to be multiple, fluid, temporary, interconnected and dispersed (Ciborra, 1996; Stark, 1999; Child and McGrath, 2001; Law and Urry, 2004), a perspective that renounces the categorical presumption of separateness is likely to offer a more useful conceptual lens with which to think about the temporally emergentsociomaterial realities that form and perform contemporary organizations.
Multiple, fluid, temporary, interconnected and dispersed. I wonder if this type of environment would make the average oil and gas worker more productive? I wonder if the producer would be more profitable here vs. say SAP or through Oracle Fusion? This is how I see the oil and gas industry being able to raise it's productivity to the level necessary to fuel the worlds demand for energy. If you are a producer that sees this as a reasonable way in which to proceed, then please support these software developments and the Community of Independent Service Providershere. And if you're a user that sees the benefits of logging into this environment as opposed to spending the two and a half hour ritual needed to get to work. Please, sell short the commercial real estate stocks you own and join us here.
Another reason that the oil and gas producers should financially support this blog is our compelling value proposition. Based on a business model that allocates the costs of development over the population of subscribing producers. This creates value by assessing the producers only once for the development costs plus an element of profit as developers. The Community of Independent Service Providers (CISP) who provide direction and guidance to the developers are part of these costs. However, their costs in using the software to support the producer will also be billed directly by the members and do not attract the profits element for People, Ideas & Objects.
These are user-driven developments that have the user in the forefront of designing, implementing and supporting ERP software for their producer clients. This is a complete restructuring of the industry in order to "Provide producers with the most profitable means of oil & gas operations".
The perspective of People, Ideas & Objects towards software is that it's a journey and not a destination. An innovative oil and gas producer can not subscribe to a fixed ERP system when the political, technical, logistic and financial difficulties continue to escalate. As things change so should the software and the CISP who use it. This dynamic attribute can only be provided in the fashion that is discussed in this software developments value proposition.
In order for the success of this development and community to provide value to the producer. We need to provide the most profitable means of oil and gas operations. This is People, Ideas & Objects competitive advantage. It's important to realize that our competitive advantage can only occur if the strategy of the producer focuses exclusively on their competitive advantages. And lets be clear the choice of ERP system has absolutely nothing to do with an oil and gas producers competitive capability or advantage. For a producer to attain the success they are searching for. They need to build the engineering and earth science capability within their firm. In addition their asset base is where their scientific capability will be applied. People, Ideas & Objects competitive advantage only provides the producer with the knowledge that from an administrative point of view, it is the most cost effective and efficient means of production.
If you are producer and this value proposition resonates with your perspective of the future oil and gas producer, please review our Funding Policies & Procedures. If your a user, please join us here.
Rarely are we provided with research that is applicable both professionally and personally. McKinsey Global Institute (MGI) have just published a comprehensive document entitled "Debt and De-leveraging: The Global Credit Bubble and Its Economic Consequences". A country by country breakdown of debt levels and the situations that both individuals and organizations will face in the coming years. The document can be downloaded from here. (Registration required.)
Although there is no breakdown by industry. Oil and gas is not in the situation where they are highly leveraged, in comparison to other industries. The high prices of the last few years did fuel heightened levels of activity, but those were with cash flow generated from production. As I have indicated many times, producers are being rewarded for their innovativeness. Borrowing money and raising capital are no longer the critical determinants of success in oil and gas.
In a video entitled "Energy: The Past Must Not Be Prologue". Professor George Schultz reflects on the stop / go mentality regarding energy. During his tenure of the Eisenhower, Nixon and Reagan administrations he saw first hand the effects of disjointed and canceled initiatives. Now that we are in a similar situation, and as he notes more dire as a result of the U.S. importing over 60% of their oil needs. He hopes that the situation regarding the long term vision of energy security is fulfilled through a long term commitment.
Secretary Schultz starts his presentation by stating his thesis.
Over the past four decades we have experienced a roller coaster ride on an energy express that has landed us unnecessarily in a place that is dangerous to our economy, our national security and our environment. Now in 2008 we have the chance to realize what we know. We can do something that we should of done long ago, and didn't.
His policies recommendations remind me of how sound the Reagan administration was. One of the stalwarts of the Reagan years was George Schultz in a variety of positions. It is clear in hindsight that he served his country well. His policy recommendations are exactly what needs to be enacted. This is a frustrating topic for him. His attempts to resolve some of these problems in the Nixon administration were obviously frustrated by the politics of the day. Nonetheless he suggests he is optimistic this time, and that this time may be different but we have to get it right and stick to it.
His recommendations are:
Give wind and solar a consistent tax environment. Agreed these will not provide the type of scale of even hydro electricity but everything helps.
Conservation. Disagree, not to suggest we should be wasteful, but energy is the means in which economies operate. Attempts to conserve may be counter to the benefits of the economy. If each barrel of oil offsets 18,000 man hours of physical labor, deferring the use of that energy is counter productive. The costs of one barrel of oil will show the world that at future prices it will remain the best of bargains.
Carbon capture and sequestration. Agreed, CO2 is a miscible agent and therefore has the dual role of pressuring formations and enabling more oil to be separated from the rocks that hold it. The more CO2, the less the cost, the greater the benefit to future production.
Nuclear power, Schultz suggests a careful opening of this means of energy production. Not that nuclear energy production is bad, its the waste and nuclear proliferation that create more problems.
Stop doing some of the dumb things that we are doing. "The encouragement of producing corn based ethanol" is a dumb policy. Agreed more energy is consumed in the entire process then what is produced.
Develop our own oil and gas resources. Or as Sarah Palin says, drill baby drill.
A floor price for oil and gas prices in the U.S. Having a defined value for the resources you find and produce will go a long way to stabilizing the stop / start manner of the energy industry. The costs to the consumers may actually be less in the future.
Heavy spending on basic research. Cites an example in the health debate of how more is being spent on insurance, whereas the reason the quality of health care is so high is the basic research that has been undertaken. Schultz also notes the role of innovation in the development of science.
At around 30:00 minutes Professor Schultz quotes MIT President Susan Hockfield in an impassioned call for sustained energy research.
Lastly at 54:00 minutes he notes the effect of the academic life, or the living in the world of ideas. When he was called upon by government he was always able to leverage the ideas that he knew were around. I think this is something that the users, and most specifically the Community of Independent Service Providers, can do with their career. The Draft Specification is the beginning of the ideas in People, Ideas & Objects. They will be able to be taken and built upon in ways that we can't even imagine today.
As always, if you are a producer and would like to support these communities financially, please follow our Funding Policies & Procedures, and if you are potential user, please join us here.
A trend is forming in the academic community. There are no shortage of papers that address the types of opportunities that now exist in the technological, organizational and innovation areas of academic research. This is an extremely strong trend, one that is a follow-on to the massive effort that went into determining the causes and effects of the financial crisis. As we move away from the possibility of a meltdown, we can see the resources of the academic community moving forward in terms of where business should position itself to succeed in the future.
It started for People, Ideas & Objects with Professors Baldwin and von Hipple's paper. We took a detailed and comprehensive review of the paper due to its pertinence and value to the Community of Independent Service Providers and the producers that support People, Ideas & Objects. That review will soon be joined by one from Professor Giovanni Dosi entitled "On the nature of technologies: knowledge, procedures, artifacts and production inputs". Professor Dosi's work was the key or primary research component contained in the Preliminary Research Report. His work helped to define what an innovative oil and gas producer would need, and that the Joint Operating Committee (JOC) is indeed the means to achieve that innovativeness. This new paper resonates with the work that is being done here. I will be reviewing all these papers in this blog as soon as I can get to them.
An additional paper from Professors Wanda Orlikowski of MIT permits me to write about something that I was too reserved to write about. This paper will add a layer, or dimension, to our software developments that ties together many of the questions users have. Professor Orlikowski's work was used in the Preliminary Research Report as well. Her work had defined the Technological Model of Structuration based on Professor Anthony Giddens Structuration Theory. It was through this work we were able to define the cognitive and motivational paradox' of building these software modules. Her Model of Structuration was also used to determine that software defines the organization. Therefore to change the organization requires that we first change the software. Which led me to coin the phrase "SAP is the bureaucracy".
We also have two very good papers from Professor Carlota Perez of Cambridge University. She has been able to define for People, Ideas & Objects the economic environment we find ourselves in. Basing her theories on the research of economic events over the last 300 years. This has provided us with an understanding that the Information and Communication Technologies (ICT) are creating significant economic changes. These changes are reflected in the dot com bubble and our recent financial driven bubbles. And now that these "events" have occurred, as she predicted, we can see the context of the current ICT Revolution is ready to be exploited. Recall what Ludwig von Mises said about the industry revolution. It was the solution to the problems at that time. We find ourselves in similarly challenged times and the ICT Revolution is the solution to those problems.
All of these works from Hagel, Baldwin, von Hipple, Dosi, Orlikowski, Perez and others show the time for the oil and gas industry to undertake the types of revisions prescribed by People, Ideas & Objects is now. It is important to highlight this development in this posting. People who contribute their time and energy to the developments of People, Ideas & Objects are compensated handsomely for their contributions. It is however not enough to start these developments until we can assure the producers and users that this project will be successful. That the people behind this development are taking the steps necessary to ensure success and that the super human effort of going beyond what is expected can be undertaken by every individual who participates. The point of this post to highlight some of the areas that we can show the producers and users that this success is closer to being attained. What we have so far is as follows:
1) There is general and widespread understanding that the oil and gas industry has entered an era where the cheap energy is gone. What remains is politically, logistically, financially and technically much more difficult. An exponentially higher level of difficulty. It has been noted by Exxon and others this will require upwards of $20 trillion additional capital over the next 20 years.
2) Professor Oliver Williamson's Nobel Prize in Economics being awarded for Transaction Cost Economics (TCE). This was a surprise event in that this relatively obscure area of the science. TCE has now been recognized for its importance on a go forward basis. Most importantly the Draft Specification incorporates the state of the art understanding of Transaction Cost Economics.
3) Our competition, Oracle and SAP have used and abused the oil and gas industry for too long. Neither have products that are satisfactory for the upstream oil and gas industry. Importantly Oracle has taken themselves out of the game by spending $39 in research and acquisition costs to bring Oracle Fusion to the world. This level of capital expenditure will price Oracle out of most of the markets they operate in. In addition, the oil and gas industry will need to spend at least as much in customized development costs as People, Ideas & Objects blank slate approach would.
4) The oil and gas producers are being called to fund our budget for 2010. At $10 million this is the amount of money that I think we can physically spend. It is being applied to the Preliminary Specification based on the Draft Specification and the agile development methodology. This is not to suggest that the entire design will be complete with this budget. It would be fool hardy to suggest that this project will be undertaken on the basis of $10 million in design costs. I hope that we will be able to develop the first iteration of the Draft, Preliminary, Detailed and Final Specification's within the scope of a $100 million commitment. People, Ideas & Objects Users, Developers, Account Managers and Project Managers all need to see the oil and gas industry commit these resources for this design. Success demands this.
5) The academic community, through independent actions of the noted leadership in their disciplines, highlight this area as a key area of value accretion to all businesses. People need to be seeing the academic community rallying around these concepts. Providing help for our users and producers to foresee how success can be attained. I would also suggest that the academic community is raising a serious warning to those producers who do not heed this call. It has been convenient for the bureaucrats to belittle People, Ideas & Objects, they may now be doing so at their own expense.
Here are the five compelling reasons that users and producers should get behind in this project. What is possible and attainable in People, Ideas & Objects has never been done before. For this reason the up-front analysis and work to ensure this project is successful is necessary. We are very close to that point, and the people want to move-on from just thinking and reading about it. If you are a producer that wants to support this project, please follow our Funding Policies & Procedures. If you are user that would like to join us, please follow this procedure.
This blog follows the works of John Hagel very closely. His work has provided much insight and direction from the point of view of how Information Technology affects business. In the May 2004 Preliminary Research Report John Hagel and John Seely Brown were highlighted to provide a definition of the developing "web services". Today Hagel's research fall's mostly under the category of innovation and his most recent post on "Edge Perspectives with John Hagel" raises the term "Institutional Innovation" of which I had not heard of before, and accurately reflects the type of work that is being done on Innovation in oil and gas.
Institutional Innovation is such a logical name for the type of innovation that we are seeking to develop. Hagel wrote in October 2007 about his concept and obviously I missed it. Talking about the types of innovation that were developing in the far east, Institutional Innovation is different then product or organizational innovation that are generally focused on one company. The definition that Hagel provides is;
In these very diverse industries, we saw entrepreneurs re-thinking institutional arrangements across very large numbers of enterprises, offering all participants an opportunity to learn faster and innovate more effectively by working together. While Western companies were lured into various forms of financial leverage, these entrepreneurs were developing sophisticated approaches to capability leverage in scalable business networks that could generate not just one product innovation, but an accelerating stream of product and service innovations.
Use of the Joint Operating Committee (JOC) by definition is not just one company. (Exceptions to every rule, if a firm were the only producer in the JOC they would operate the assets in the same manner as if they had partners.) The JOC is an organizational construct that the oil and gas industry established in the very beginning to deal with the risks involved in the business, and / or, the merging of interests due to the aerial extent of the assets owned. Clearly to reduce your risk you brought on partners, and when assets grew progressively larger, building gas plants and facilities every mile was impractical.
The JOC is a form of organization that is recognized in every producer. Many "fields" may have up to 100 or more partners, each with disparate assets and percentages, each pursuing their own corporate strategy and being profitable in a multitude of ways. No two may be alike. The JOC has been the culture of the industry from the beginning, it is the legal and financial framework and all producers have operational decision making and communications that recognize the management of the asset. It is these five frameworks that are being enabled in People, Ideas & Objects and it is these five frameworks that are necessary for the producer to be able to decide and implement their best strategies. The hierarchy, in oil and gas, has relegated itself to the compliance and governance of the firm. These frameworks manage the royalty obligations, the tax obligations and the security obligations. It is the royalty, tax and security frameworks that Oracle and SAP have handled to date, ask them about a JOC and they look at you with a puzzled look and wonder why you don't want to get closer to your customers. ;)
Our purpose at People, Ideas & Objects is to move the tax, royalty and security frameworks over to the JOC in order align them with the cultural, financial, legal, communication and operational decision making frameworks. This re-alignment does at least two really big things.
First it enables accountability. When compliance and governance are separated from operational decision making no one is able to be held accountable. Who made the decisions that earned the 100% increase in profits? Why does this company seem to make the same mistakes over and over? These types of questions will be easily answered when the individuals who are responsible for the wins will be recognized, and those that are going through the motions will also be identified.
Secondly "Institutional Innovation" is enabled and the producer can iterate on the science and innovations in the business of oil and gas. Now oil and gas only involves chemistry, physics and biology at its core, and this is why Matthew Simmons says it is the second most complex industry to the space industry. Innovation on these sciences is what needs to take place for the industry to move quicker and provide the market with oil and gas. With the state of globalization, does anyone believe we are producing enough for the future? I am sure the political and logistical difficulties will only accelerate as well. Higher commodity prices are rewarding the producers that innovate the most. I can definitely see why a bureaucracy could be failing in these tasks.
Hagle notes why Institutional Innovation would be a good term to define People, Ideas & Objects.
Institutional innovation is different - it defines new ways of working together, ways that can scale much more effectively across large numbers of very diverse enterprises. It provides ways to flexibly reconfigure capability while at the same time building long-term trust based relationships that help participants to learn faster.
Institutional innovation has enormous power to disrupt and drive major new forms of economic value creation and capture. Much of its power stems from its ability to blindside incumbents who hold onto traditional mindsets. As I argued in the Shift Index, new digital infrastructures and related public policy shifts are increasingly rendering obsolete the assumptions that Western executives hold about what is required to create and capture economic value.
Until and unless Western executives begin to aggressively challenge these assumptions and awaken to the potential of institutional innovation, they will remain vulnerable to attack. They must begin to recognize that the most promising forms of innovation emerging in developing economies are not at the level of individual products or services but rather at a much deeper level – novel approaches to scalable peer learning shaped by institutional innovation.
Those last two paragraphs are golden. The bureaucracy has certainly fought long and hard to ignore People, Ideas & Objects. We sit at very lofty heights in our standard of living and economy. These bureaucracies are putting in jeopardy these advanced lifestyles we have become accustomed to. Falling from here could be painful. I am concerned that the bureaucracy will never support these development and have instead directed our appeal to the investors and shareholders, the real oil and gas men and women, to fund these developments as an alternative form of organization. If you are a producer that would like to support these developments please follow our funding policies and procedures and if you are someone with oil and gas experience that knows we can do better, please join me here.
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.
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.
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.
The cost of identifying the functional requirements (that is, what the design is supposed to do);
The cost of dividing the overall problem into sub-problems, which can be solved separately;
The cost of solving the sub-problems;
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 note throughout these writings our reference to bureaucrats represents the CEO, CFO, COO and directors of the producer firms. These are the people that we see who have the authority to correct these issues and are the individuals responsible for the damage and destruction in the industry.
Please review this software applications Preliminary Specification, in which we provide an overall vision of how a producer would operate using the Joint Operating Committee as the key organizational construct.
If you are interested in joining People, Ideas & Objects user community then please follow this process. Lastly you can contact me at paul.cox@people-ideas-objects.com or Calgary (587) 735-2302 and Houston (713) 965-6720.
