Budget conversation

A quick note that one of the desired benefits of this first quarter 2010 fund raising drive. Is to prove the bureaucracy will not fall on its sword. Calling on the investors and shareholders in oil and gas to fund this software development is a reasonable approach to break this deadlock.

We see with the strong academic grounding of the ideas of using the Joint Operating Committee as the key organizational construct. This method of organization and software development is a reasonable approach to the problems in the industry.

It is difficult to see the investors and shareholders directly funding these developments themselves. It is anticipated that they would pressure their management to participate. This can be achieved at few times and with few opportunities in the calendar year. And that time is coming quickly.

If the investors were able to have their firms vote on supporting People, Ideas & Objects at their Annual General Meeting (AGM). Would this be an opportunity to speak over the heads of the bureaucracy and get People, Ideas & Objects funded? The form of proxy is currently being developed for the AGM. Is this the means to have the 2010 budget funded?

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Baldwin Mirroring Hypothesis Part II

People, Ideas & Objects is about innovation in oil and gas. Energy has become substantially more difficult now that the easy-energy era has passed. Innovation in the Earth Science and Engineering disciplines is where the difficulty and value reside. How do we develop an organization that facilitates and supports these sciences and innovations. The Preliminary Research Report determined that the Joint Operating Committee (JOC) is the appropriate organizational construct to enable innovation. This implying a level of interdependence between producers represented in the JOC. 

Professor Wanda Orlikowski's Model of Technological Structuration was used in the Preliminary Research Report to determine that software defines the organization. To change the organization requires the software to be built first. Using Baldwin's Mirroring Hypothesis suggests that we will also need to develop an interdependent organization within People, Ideas & Objects to develop that software.

Scholars in a range of disciplines have argued that mirroring is either a necessary or highly desirable feature in the design of development projects, but empirical research shows that some projects deviate from strict mirroring, seemingly without harmful effects. In this paper, we formally define the mirroring hypothesis, describe its theoretical underpinnings and systematically review the empirical evidence for and against it. Our review includes 129 studies spanning three levels of organization: within a single firm, across firms, and open community-based development. Across these levels, the hypothesis was supported in 69% of the relevant cases, but not supported in 31%. It was most strongly supported within firms, less strongly across firms, and often violated in community-based development settings. p. 1

It is in the review of those 129 studies that our ability to see the Mirroring Hypothesis, or to be precise, the exception noted and developed in Professor Baldwins paper, is directly applicable to the work being done in People, Ideas & Objects. Therefore, in many ways, defining what and how the organization of users, developers and members of the Community of Independent Service Providers will operate to build this software.

The exceptions in turn were of two types: In four cases, closely collaborating teams within single firms created modular systems comprised of independent components. More surprisingly, in 28 cases, independent and dispersed contributors made highly interdependent contributions to the design of a single technical system (or sub-system). Based on a detailed analysis of the latter 28, we introduce the concept of actionable transparency as a means of achieving coordination without mirroring. Contributors achieve actionable transparency by embedding their design in a centralized system with a shared design language and near-real-time updating, where everyone with an interest in improving the design has the right and the means to act on it. We present examples from practice and then describe the more complex organizational patterns that emerge in lieu of genuine mirroring when actionable transparency allows people to “break the mirror.” p. 1

The exception to the Mirroring Hypothesis is teams comprised of independent and dispersed individuals can provide the desired interdependency that we are seeking in the innovative oil and gas producer.

1 Introduction

The authors provide a definition of what innovation consists of. A definition of innovation that reflects what will be necessary in both the innovative oil and gas firm, and the innovative systems development communities of People, Ideas & Objects.

Innovation is a process in which people define problems and then actively develop new knowledge to solve those problems (Nonaka, 1994). p. 2

Building on this definition, what will be required to ensure that the dispersed and independent contributions of People, Ideas & Objects will enable the interdependence necessary in the software. Or as Baldwin suggests that we "break the mirror".

Responding to these gaps, this study makes two key contributions to the literature. First, it defines the mirroring hypothesis, explains its theoretical roots, and then systematically and critically reviews the empirical evidence pertaining to it. Second, it synthesizes observations from a large number of cases that violate the hypothesis to explain when and how development organizations can “break the mirror.” pp. 2 - 3

and

By contrast, the second type of exception poses a deeper theoretical challenge. In traditional development organizations, people have relied on spontaneous face-to-face communication, physical collocation, and formal authority to coordinate highly interdependent design tasks. The paradigmatic form of organization for developing an interdependent design is a highly interactive team, working in close proximity, employed by a single firm (Allen, 1977; Clark and Fujimoto, 1991; Sanchez and Mahoney, 1996; Chesbrough and Teece, 1996; Baldwin and Clark, 2000). However, the large number of counter-examples revealed by our study immediately raises the question, how are interdependent design decisions and tasks coordinated in the absence of face-to-face communication, physical collocation, and formal authority? pp. 3 - 4

If we go back to our review of Professor Baldwin and von Hipple's paper in late 2009 and early 2010, "Modelling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation". This paper compared various forms of innovation by producers, innovation by individual users and  open collaborative innovations. We learned that user contributions were freely given when the user understood and contributed to a design when they would receive greater value from the design then what they contributed. People, Ideas & Objects maintains the identity of users are "hidden" from the bureaucracies who do not want this project proceeding. And lastly the tools, policies and procedures of making contributions to People, Ideas & Objects maintain what the authors call "common ground". These are the components that will make the project successful.

To answer this question, in Section 5, we take a closer look at the twenty-eight exceptional cases in which independent contributors developed highly interdependent designs. We find that in all such cases (1) the contributors had compatible motivations and no severe conflicts of interest with respect to the ultimate use of the design; (2) the contributors worked in or created a framework that gave them expectations of good faith and some protection from harmful actions by other contributors; and (3) most importantly, the contributors maintained a significant shared understanding or “common ground” with respect to the design (Clark, 1996; Srikanth and Puranam, 2007). Common ground was sometimes created using analogues of traditional coordination mechanisms—e.g., electronic communication, temporary collocation, and informal, status-based authority. But we also find that independent contributors often coordinated their efforts implicitly by using development tools that made the design-in-progress both transparent to and actionable by all members of the group. p. 4

Yesterday in Part I of our review of this paper we documented the concept developed by the authors of Actionable Transparency. Actionable Transparency is the necessary ingredient to dispersed and independent developers to maintain high levels of innovative development. This ingredient is therefore not only desirable for People, Ideas & Objects, but also the innovative oil and gas producers.

The concept of actionable transparency is the main theoretical contribution of this paper and the focus of Section 6. As we define it, actionable transparency captures the extent to which everyone with an interest in improving a given design has the right and the means to act on it, i.e., to change it and see what effects the changes have. p. 4

and

In effect, anyone with access to the archives can “see” what’s going on without needing direct input or assistance from others. Actionable transparency requires not just that people can access and make sense of the archives and source materials, but also that they can contribute to the evolving design. p. 4

As the authors have noted "Actionable Transparency" has broken the mirror. Although the independent contributions develop an interdependent system. The breaking of the mirror would indicate that an innovative oil and gas producer would not be supported by these types of activities. Here the authors note that genuine mirroring is not achieved, but something more desirable, valid and valuable.

In the presence of actionable transparency, it is common for more complex relationships between system design and organizational structure to emerge in lieu of genuine mirroring. p. 4

In summary, based on three recent papers that we reviewed. [Orlikowski's paper and Structurational Model of Technology, Professor Baldwin's and von Hipple, and this paper] we are able to conclude the methods and means that People, Ideas & Objects software development methodology will successfully develop the modular Draft Specification. Which in turn will enable and support the innovative oil and gas producer to employ the interdependence inherent in the JOC. 

From this study, managers may conclude that mirroring is a common and effective way to achieve coordination, but it is not the only way. In the presence of compatible motivations and frameworks supporting expectations of good faith, there are new ways of building common ground, based on digitized designs, electronic archives, automated test suites, and instantaneous transmission of text, data and pictures. These alternative means, which support what we have called actionable transparency, can be used as complements or substitutes for mirrored forms of organization. Managers of development organizations within and across firms and in open collaborative groups, who choose or are required by circumstances to “break the mirror,” should be aware of these alternative means of achieving coordination. p. 33

and

We have shown that while mirroring is common in practice, it is not universal. Independent, dispersed individuals and firms can successfully collaborate on highly interdependent tasks if they have compatible motivations and expectations of good faith and can maintain a shared understanding of the evolving design. Actionable transparency can sustain an ongoing shared understanding of a design amongst far-flung contributors, thus is an important means of collaboration in the digital age. p. 34

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member
of the Community of Independent Service Providers, please join us here.

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Baldwin Mirroring Hypothesis Part I

A new working paper has been released by Professor Carliss Baldwin and Lyra Colfer. This paper "The Mirroring Hypothesis: Theory, Evidence and Exceptions" is something that we should have written about before, however time is an issue. What is interesting about this paper is that it is Professor Baldwin's co-author, Lyra Colfer's Doctoral Dissertation. Her Dissertation has been abbreviated into one paper that provides substantial evidence that the methods being used in the development of People, Ideas & Objects software applications. Are not just valid, but also valid for the oil and gas industry at large.

In Part I of our review of this paper, I want to introduce the hypothesis, discuss the authors definition of Open Collaboration and note how People, Ideas & Objects deviates from their definition. And lastly in this first part, talk at length about a concept called Actionable Transparency.

The authors define the mirroring hypothesis as;

The mirroring hypothesis asserts that the organizational patterns of a development project (e.g. communication links, geographic collocation, team and firm co-membership) will correspond to the technical patterns of dependency in the system under development. Thus the hypothesis predicts that developers with few or no organizational linkages will design independent system components, while developers with rich organizational linkages will co-design highly interdependent system components. (The hypothesis claims a correspondence between organizational structure and technical architecture, but allows causality to flow in either direction.) p. 1

Open collaboration as it is called in this paper is defined as:

In an open collaborative development project, product design information, such as software source code, is placed in the public domain. Independent entities including individuals and firms contribute voluntarily to the design, according to their own private needs and interests; they self-select their contributions without relying on managers or market prices to guide them (Raymond 1998, 2001; Benkler 2002; von Hippel and von Krogh, 2003; Weber 2004; Lakhani and von Hippel, 2009). The open collaborative literature extrapolates from these observations, and uses the mirroring hypothesis to predict the structural form of products created in these settings. p. 12

A clarification is necessary to reconcile People, Ideas & Objects differences to this definition. That is the source code is not placed in the public domain. The costs associated with development are too high to expect a volunteer group to be able to identify and build the necessary scope of an application of this size. Access to the code is made available, however, with the desired benefit that the direction the application takes is determined by the user groups based on their needs. I detailed the differences between People, Ideas & Objects and pure Open Source developments in a recent post.

This difference between the definition and our development do not preclude us from learning from this paper and applying its conclusion. On the contrary, I think that the difference between the theoretical and commercial world, in terms of the conclusion, is negligible, and its conclusion is precisely applicable.

6 Actionable Transparency

"Actionable Transparency" is a term that has been coined by Professor Carliss Baldwin. As we will see in Part II of our review, the authors determine that the situation that we fall within "break the mirror" and it is through the concept of Actionable Transparency that we find the results of this research interesting and applicable.

In The Age of the Smart Machine, Shoshana Zuboff (1988) observed that the increasingly information-based nature of industrial work has radically increased its “transparency.” She argued that, when auto-generated archives constitute a near-perfect surrogate for the activities that generated them, access to those archives provides “universal transparency” into what others are doing (pp. 315, 356-361). In effect, anyone with access to the archives can “see” what’s going on without the benefit of direct input or assistance from others. p. 28

Google would certainly subscribe to this theory. If everything is discoverable, then we certainly have a different approach to how we do things.

Material transparency denotes the mere disclosure of information. By comparison, conceptual transparency requires not only that contributors can access the information, but also that they can make sense of it (cf. Wenger, 1990). Finally, actionable transparency requires not just that they can make sense of it, but also that they can act on it (cf. West and O’Mahony, 2008). p. 28

We come to a problem in the development of the People, Ideas & Objects systems that the needs of one user can not necessarily be met through a generic design. I would assert that we are not seeking a generic design, but one that deals with the unique nature of the oil and gas industry as represented in the Joint Operating Committee. How this comes about is unknown, however, lets accept that we can have a multitude of different opportunities and options available to users of the system. If we make the assumption that it is possible, I think we can see in these authors work that Actionable Transparency is the solution.

Material and conceptual transparency do not imply actionability, however. Just because a potential designer understands a design doesn’t mean she can act on it. However, if she has the right and means to customize her own private copy of the design, then she has more room for action. The ideal form of actionable transparency goes even further: the designer can combine her changes with a host of others’, in near real-time, while at the same time guarding against design conflicts and catastrophes. Thus the concept of actionable transparency captures the extent to which everyone with an interest in improving the design has the right and means to act on both their own copy and the master copy of the design. pp. 28 - 29

The concept is well captured in the conceptual form of Open Source code improvements in People, Ideas & Objects. The issue of scope and scale are addressed through the ownership of the intellectual property and the means to fund these developments. Otherwise I see no difference.

What does actionable transparency achieve that conceptual transparency cannot? As indicated at the beginning of the paper, design is a process in which people define problems and then draw on their stores of knowledge and generate new knowledge to solve those problems (Simon, 1981; Alexander, 1964). Much design-relevant knowledge is tacit and initially inaccurate (Nonaka, 1994), consisting of conjectures of the form: “if I change the design this way, these things will happen.” “This way” and “these things” are generally tacit hunches, which are not well-articulated even in the mind of the designer (Bucciarelli, 1994). Yet if a conceptually transparent design is also actionable, conjectures of this type can be tested, evaluated, and new conjectures generated quickly and efficiently. There is no need to make the conjecture comprehensible to another person. There is no need to persuade someone else that a new idea is worth trying, risking failure and embarrassment. Interactions between the designer and the design (embedded in a system of archives and test suites, etc.) are all that is needed to generate a new trial and new knowledge. p. 29

In the Preliminary Research Report Professor Giovanni Dosi's work showed that innovation was messy. Many failures and wrong approaches would be taken, that it is this process of failure that helps to define the successful approaches.

Moreover, if a technical system is actionably transparent to several or many designers, experiments can go on in parallel and concurrently across many designers, who can then learn about and use each other’s changes via the system itself. (See Lakhani and von Hippel, 2009 on “optimistic concurrency” in open-source development.) This form of concurrent, recombinant experimentation creates a very rapid and powerful “generator-test” cycle. Such cycles, sometimes called “variation-selection -retention” cycles, lie at the core of all Darwinian evolutionary processes, including those found in theories of organizational change and evolutionary economics (Campbell, 1969; Simon, 1981, pp.128-130; Nelson and Winter, 1982; Anderson and Tushman, 1990; Tushman and Rosenkopf, 1992; Nelson, 1995). Thus actionable transparency can speed up the processes of design evolution, thereby increasing the rates of innovation and improvement for the system as a whole. p. 29

It is necessary to state how the unique way in which the intellectual property of People, Ideas & Objects enables "Actionable Transparency". I as author of the original Preliminary Research Report, this blog and other writings earned the copyright to the ideas that are expressed. Users, the Community of Independent Service Providers and others are monetarily compensated for their contributions. In essence I am purchasing the ideas that are generated based on the original ideas expressed in the research and blog. The aggregate copyright of all of the ideas is then licensed to the users and members of the CISP's, developers and others, such that this type of interaction, experimentation and development is possible and I would suggest encouraged. I in turn use the copyright to generate the funding from the producers.

The cost of coordinating an organization or team is sometimes equated with its communication complexity, that is, the number of messages that must be passed between members in the course of getting the work done (Brooks, 1975). Mirroring and actionable transparency in a shared system have very different implications for communication complexity. Given a team of n agents working on a fully interdependent design, the cost of coordination via mirroring is n2  n. For the same number of agents and design structure, the cost of coordination via actionable transparency falls to 2n: each agent only needs to manage his or her information exchanges with the system. p. 31

What is the effect of this conceptual model?

In the presence of actionable transparency, it is common for more complex organizational patterns to emerge in lieu of genuine mirroring. We describe these patterns below. p. 31

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Perez Technological Revolutions III

Part three of our review of Professor Carlota Perez' "Technological Revolutions and Techno-Economic Paradigms" focuses on the organization. People, Ideas & Objects are building software that aligns the compliance sub-frameworks and governance frameworks of the hierarchy, with the five frameworks of the Joint Operating Committee. The hierarchy represents the Tax, Royalty and SEC sub-frameworks. These sub-frameworks are being moved to the Joint Operating Committee to align with the legal, financial, operational decision making, cultural and communication frameworks of all producers. This alignment eliminates the need for the hierarchy and its very ugly cousin the bureaucracy. In addition the Military Command & Control Metaphor is used to replace the governance framework of the hierarchy.

This alignment of the oil and gas firm and market frameworks, around the Joint Operating Committee, is a common-sense proposal that strikes everyone with the "but of course" response.

7. The emergence of a techno-economic paradigm

It is clear in my mind that I believe the Information & Communication Technology Revolution (ICTR) will have a remarkable impact on productivity in oil and gas. This is however, not a shared belief.

No matter how important and dynamic a set of new technologies may be, it only merits the term revolution if it has the power to bring about a transformation across the board. It is the techno-economic paradigm (TEP), being articulated through the use of the new technologies as they diffuse, that multiplies their impact across the economy and eventually also modifies the way socio-institutional structures are organised. p. 194

In Professor Perez' writings it is explicit that the reason for these transitions from one organizational structure to the next is due to competition. The competition coming from the new technologies applied to existing industries. For example, the age of steel enabled new ship builders with larger hulls and faster speeds to eliminate the needs for boat makers based on wood and other materials.

7.3 New organizational models

The alignment that is being captured in the People, Ideas & Objects software would not be possible ten years ago. It probably is only attainable with the tools and architecture that is available today in the Oracle technology stack. The Joint Operating Committees have existed "virtually" as a means for companies to deal with the unique characteristics of the partnerships represented. To move the industry to this new method of organizational structure is only possible with the demand for more efficient systems.

Finally, the TEP incorporates the criteria for best organisational practice. As the new technologies transform work and consumption patterns, they also transform the way factories and businesses are organised. Regular practice in the use of these technologies and in relating to the new conditions in the market contributes to the establishment of new principles of organisation that prove superior to the previous and become part of the new common sense for efficiency and effectiveness. P. 197

A common sense for the industry to move from the Joint Operating Committee being virtual to more tangible, focused and innovative. Two of the primary benefits of this transition is the alignment of operational decision making with the compliance framework. Achieving for the first time in oil and gas, direct accountability. This has the secondary follow on effect of identifying who within the organization is continually making the same mistakes and who is building the value. It is critical for an innovative producer to have these attributes, and it is clear why the bureaucracy has fought so hard to eliminate People, Ideas & Objects from the marketplace.

In each case, the paradigm shift in organisational and business logic becomes widespread and modifies business models and strategies so that the ones that are more compatible with the general logic of the new paradigm prove to be more successful, become highly visible and are increasingly imitated. Thus the TEP is further enriched and the process is self-reinforced. P. 198

What the bureaucracy should consider. Is now the time when this common sense organizational construct, the Joint Operating Committee, be supported and defined in the software of People, Ideas & Objects, based on the Oracle technology stack, with the dynamics of the high-cost era of energy upon us, and the associated disruption of the financial markets defining a new world order? Is this the time that the bureaucracy should stand and fight for its turf, or concede and actively support this software development project?

A techno-economic paradigm is, then, the result of a complex collective learning process articulated in a dynamic mental model of the best economic, technological and organisational practice for the period in which a specific technological revolution is being adopted and assimilated by the economic and social system. Each TEP combines shared perceptions, shared practices and shared directions of change. Its adoption facilitates the achievement of the maximum efficiency and profitability and its diffusion provides a common understanding among the different agents that participate in the economy, from producers to consumers. P. 198

We will know the answer to these questions by March 31, 2010. The deadline in which the 2010 Budget & Planning commitments are due. People, Ideas & Objects are based on such a radically effective value proposition that the bureaucracies determination that no, this is not the time, should be seriously questioned as to who the bureaucracy works for.

8. Diffusion, resistance and assimilation of successive techno-economic paradigms

This conflict between People, Ideas & Objects and the reigning bureaucracy has continued unabated since September 2003. The time in which the proposed research be undertaken. Much has happened to make the research valid and the timing has turned in People, Ideas & Objects favor. Professor Perez suggests diplomatically this "organizational inertia" is at a cross roads as well.

Organisational inertia is a well known phenomenon of human and social resistance to change. In the market economy, however, inertia is overcome by competition, which, by showing the direction of success, serves as a guide to best practice and as a survival threat to the laggards. p. 198

This "survival threat" is a business issue that the oil and gas investor and shareholder should assess in the current market. Is the cost of supporting the software developments of People, Ideas & Objects worth the alternative means of organizing your oil and gas assets?

Even in the economy, under the pressure of competition, the profound and wide-ranging changes made possible by each technological revolution and its techno-economic paradigm are not easily assimilated; they give rise to intense resistance and require bringing forth even stronger change-inducing mechanisms. It is the younger generation that never learned the practices of the previous paradigm that most naturally adopts and applies the new principles. p. 199

It brings me great pleasure to be legitimately offering this opportunity. An opportunity that has far reaching consequences for all involved. What will the markets decisions be on or before March 31, 2010?

Eventually, the new TEP becomes the shared, established and unquestioned ‘common sense’ both in the economy and in the socio-institutional framework creating a clearly biased context in favour of the trajectories of the technologies of the revolution and their use across the economy. This adaptation generates externalities that operate as an inclusion–exclusion mechanism to encourage compatible innovations and discourage incompatible ones. This is an important part of the explanation of why change occurs by revolutions. Thus, techno-economic paradigms act as context shapers in favour of one revolution and—through over-adaptation—as hindrance and obstacle for the next. p. 199

The word revolution never had so much meaning as it does in this context.

Hence, each great surge of development involves a turbulent process of diffusion and assimilation. The major incumbent industries are replaced as engines of growth by new emerging ones; the established technologies and the prevailing paradigm are made obsolete and transformed by the new ones; many of the working and management skills that had been successful in the past become outdated and inefficient, demanding unlearning, learning and relearning processes. Such changes in the economy are very disturbing of the social status-quo and have each time accompanied the explosive growth of new wealth with strong polarising trends in the income distribution. These and other imbalances and tensions resulting from the technological upheaval—including a major financial bubble and its collapse (Perez, 2009)—end up creating conditions that require an equally deep transformation of the whole institutional framework. It is only when this is achieved and the enabling context is in place that the full wealth-creating potential of each revolution can be deployed. p. 199

9. Putting everything together: Regularities, continuities and discontinuities in technical change

One of the more refreshing attributes of Professor Perez' writings, is it just writes itself.

The vehicle of that wide-ranging change of direction in innovation is the techno-economic paradigm, which is a best practice model gradually emerging from practical experience in applying the new technologies. It indicates the optimal, most effective and most profitable way of making use of the new innovative potential. Each TEP articulates a basic set of principles that serves as an envelope encompassing the trajectories of individual technologies and shaping their preferred direction. The TEP propagates together with the new technologies producing the surge of development. Its influence extends from the business sphere to institutions and society so that, as its adoption advances, it becomes the shared common sense for decision making in management, engineering, finance, trade and consumption. This new logic and its capacity to increase effectiveness and efficiency eventually also shape institutional and social organisations, expectations and behaviours. p. 200

And this next paragraph has been a guiding principle to ensuring that the flexible framework for this revolution is enabled in the People, Ideas & Objects application and communities.

The mutual adaptation of technology and society through the social learning of the paradigm and the adaptive redesign of the institutional framework enables reaping the maximum benefit from the wealth creating potential contained in each great surge. But,when this potential is exhausted and a new revolution begins to emerge, those embedded habits and institutions act as a powerful inertial force and must be transformed to enable the next surge. This understanding of the influence of technical change on long term economic growth is one of the key contributions of evolutionary economics to the comprehension of macroeconomics as dynamic and historically shaped. It is no longer possible to ignore the specific technological revolution being diffused and its stage of deployment. p.200

And how pleasant and smooth this entire process can be.

On the view being described here, the notions of long run equilibrium and continuous progress are rejected in favour of more complex processes of overcoming multiple disequilibria originated in massive innovation, in internal differentiation within and between sectors, of creative destruction, assimilation, learning and unlearning successive technological spaces and best practice models and of reaching and overcoming maturity through successive surges of change. The changing rhythms of growth and the processes of structural change and increasing productivity in the economy can now be understood as driven by identifiable technical change and as shaped by the diffusion of successive technological revolutions. p. 200

Winners and losers will be assessed on such criteria. Where will the bureaucracy stand on March 31, 2010. Professor Perez reflects that these are not situations that are difficult to see. It is common sense.

Taken together, the micro, meso and macro views of how technologies evolve show that it is possible to recognise the nature of technology, its forms of evolution and its interrelations as an object for social science analysis and as a way of embedding economic theory in the dynamics of its interaction with technology and institutions in a changing historical context. p. 201

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Product Owner - Position

The Agile / Scrum software development methodology has many predefined roles. The Product Owner is one of them, and Product Owners are a part of the Scrum team. People, Ideas & Objects will have many Product Owners. One for each of 20 possible Scrum teams. [Eleven defined modules of the Draft Specification, User-Interface, Architecture, Data model etc.]

Project Owners are "pigs" in the scrum world. Pigs, unlike Chickens, have everything invested at the breakfast table. An appropriate term in my opinion. Their job is simple, satisfy all stakeholder concerns. Working with the many Account Managers of producers and their users, the Community of Independent Service Providers, (CISP) and their Scrum Team members. Product Owners will be the individuals who magically prioritize the developments to meet the changing needs of the producers.

By adopting Oracle technologies People, Ideas & Objects inherits their entire technology stack. An Open yet integrated technology stack like no other. Making the Draft Specification and subsequent designs executable is no small task, we are grateful for the vision and execution of Oracle Hardware & Software. We are also constrained by those technologies, and it will be the Product Owners that feel those constraints the most.

By adopting Oracle we will have an advanced tool set and infrastructure to deal with. Our developers and particularly our Product Owners will have to be intimately familiar with Oracle technologies. This is the standard means of Oracle application delivery in the marketplace. There is a substantial marketplace of Oracle consultants available to People, Ideas & Objects and associated communities. In addition to the need to be familiar with the Oracle technology stack, Product Owners will need to be intimately familiar with the oil and gas industry, generic business needs and their "products". I'm just glad I already have a job at People, Ideas & Objects.

By way of a scenario, as the Product Owner of the Petroleum Lease Marketplace (PLM) Module a day might look similar to this... The Product Owner reviews a small sample of email messages, and prior days edits to the wiki. Edits and comments from the 500 Account Managers and 27,000 users who use the PLM. Account Managers are at times representative of the collective desires of these 27,000 users. These users have compiled a wish list of 1,000 user stories of what they need and want in the PLM software. Although daunting, the solutions to each can be represented by making 15 major changes in the PLM. The Product Owner has been blogging about these 15 proposed changes, for a number of weeks. These changes are also passionately felt by many of the members in the CISP. As always, major changes in the software can be brought into production with one two-week sprint. The Project Owner has recruited a representative group of users from 12 producers to work with the developers during that sprint. The Product Owner sets tomorrow for the team to begin these developments. Suddenly she realizes it's 7:30 in the morning and she has to get ready to catch a flight to Europe for the bi-annual People, Ideas & Objects user conference...

A little creative license is handy. If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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All Roads Lead to Coase

I have had the opportunity to review this jewel of a video "Markets, Firms & Property Rights" by Professor Ronald Coase. Scratch the surface of any of the research that we review on this blog, and Coase's 1937 book "Nature of the Firm" will be there. He makes an interesting comment that I had not heard before. "Markets are creations" and that is what we are doing in the Draft Specification with the Petroleum Lease Marketplace, Resource Marketplace and Financial Marketplace Modules; creating markets.

Overall much of our research review has been on Transaction Cost Economics. Through building the Draft Specification we are able to automate many transactions, but also deal in the value generating activity of designing transactions. In a 1997 Reason Magazine interview Coase made the following comment.

Reason: People are very excited that transactions are taking place much more efficiently than ever before through new electronic means and better communication systems. Are you excited about these trends?

Coase: Yes, because I don't understand them. People talk about increases in improvements in technology, but just as important are improvements in the way in which people make contracts and deals. If you can lower the costs there, you can have more specialization and greater production. So that's what I'm interested in now. By improving the way the market works, you can produce immense benefits, not because it invents new technologies, but because it enables new technologies to be used. Without the ability to make efficient contracts, you can't use these new means. And a lot of effort is going, at the moment, into devising new ways of handling the problems, mainly by the lawyers.

We stand on the shoulders of giants. In Coase's case he won the 1991 Nobel Prize in Economics and celebrates his 100th birthday this year.



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January 2010 Update

This update is to advise of the budget activities around our 2010 Budget & Planning. Our deadline of March 31, 2010 is one third closer then where we were at the start of this year. The amount of interest or contact with either producers or investors and shareholders in oil and gas has been none. We currently have no funding commitments.

To my way of thinking we have but one choice. To start these developments in 2010. The scope of this project can not be undertaken on a volunteer basis, it must have the full support of the industry.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here. Our next update will be on or around February 15, 2010.

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Perez Technology Revolutions II

In the first part of our review of Professor Carlota Perez' "Technological revolutions and techno-economic paradigms" we learned many things about the economic situation we are currently in and how the "Sustainable Global Knowledge Society Boom" will affect us. Specifically how the energy industry has employed the process of innovation in "techno-economic paradigms" and how this could be accelerated using the Information & Communication Technology Revolution (ICTR) as suggested in the Resource Marketplace Module.

Note; as I write this second part, of this second document of Professor Carlota Perez, for just this year. Strategy + Business have published a new article of Professor Perez. It can be accessed here. [There is Exhibit 1 that is included in the document that has a "We are here" point on the "time" axis.] And Professor Carliss Baldwin just released a paper entitled "The Mirroring Hypothesis: Theory, Evidence and Exceptions". It is available here, and both papers will be reviewed on innovation in oil and gas as soon as possible.

5. Technological revolutions and techno-economic paradigms

In this second part of our review of Professor Perez' paper. We learn that her research is based on the impact of technology over the last 300 years.

It is possible to identify five such systems of systems since the initial ‘Industrial Revolution’ in England. Each can be seen as inaugurated by an important technological breakthrough acting as the big-bang that opens a new universe of opportunity for profitable innovation. Such was the case of the Intel microprocessor, or computer on a chip, initiating the information revolution. p. 189

For the purposes of our review of this paper the Internet is the technology that makes the ICTR robust for what Perez calls the "deployment" phase. In Part I of this paper we noted Professor Ludwig von Mises' comments that the Industrial Revolution was the solution to the problems facing society.

What distinguishes a technological revolution from a random collection of technology systems and justifies conceptualizing it as a revolution are two basic features.

• The strong interconnectedness and interdependence of the participating systems in their technologies and markets.
• The capacity to transform profoundly the rest of the economy (and eventually society). p. 189

and

The capacity to transform other industries and activities results from the influence of its associated techno-economic paradigm, a best practice model for the most effective ways of using the new technologies within and beyond the new industries. While the new sectors expand to become the engines of growth for a long period, the techno-economic paradigm that results from their use guides a vast reorganisation and a widespread rise in productivity across pre-existing industries. p. 189

Demands for energy by everyone is escalating. Energy is oxygen to an economy. Any lack of energy to one country or another could have significant negative effects to their economic possibilities. We have seen through the research in this blog that the equivalent man hours of work contained within one barrel of oil totals 18,000 hours. Denial of energy seems to be unfair and unreasonable to those who have to go without. Energy at any price appears to be the deal of this century, and it is. Oil and gas is the business that we are in.

It therefore seems unreasonable to be constrained by energy. The bureaucracy has brought us to this level, and we have prospered, now we need to move faster and more innovatively. Using the ICTR to enable greater deliver-ability of oil and gas is what is possible.

Thus, a technological revolution can be seen more generally as a major upheaval of the wealth-creating potential of the economy, opening a vast innovation opportunity space and providing a new set of associated generic technologies, infrastructures and organisational principles that can significantly increase the efficiency and effectiveness of all industries and activities. p. 190

People, Ideas & Things as Professor Paul Romer has stated similar points in his Reason Magazine interview.

6. The structure of technological revolutions

Oil and gas involves science. Earth sciences and engineering disciplines are the source of where the value is created and held in the industry. Innovations are based on the sciences and in turn fuel scientific discovery, just as discoveries lead to future innovations. How can this value generating process accelerate?

It is at this point, when the argument of the secretive ways of how the bureaucracy deals with ideas is noted to be decidedly counter productive. The process of hiding ideas has the negative effect of not identifying whom is responsible, and hence the reduction of monetary benefits to the discoverer.

If you believe that the next great innovation in oil and gas is going to pop out of some one's office, you might be waiting for a long time. The pursuit of ideas is hard and risky work. If an engineer thinks that he can provide the industry with a 2% gain in productivity by using his new idea, then he / she should be entitled to earn the rights too that idea as reward for the difficult, difficult work.

In the current bureaucracy "knowledge" is held by no one. If someone comes up with a good idea in new drilling technology; then the bureaucracy will sponsor three drilling companies to implement it. Great if your one of the three drilling companies, not so good if your the individual who thought of the idea and were not rewarded. That is the old way of doing business.

The Research & Capabilities Module replaces these secretive ways of the energy industry from a science and engineering perspective. To a proposed method in which the discoveries populate the Module immediately upon discovery. This does two things. First the individual is recognized with the discovery and earns the rights to his / her intellectual property. Secondly these innovations are known within the industry on which others can build upon.

Energy producers should be concerned with their two competitive advantages. One their land and physical asset base. Two, the capabilities they have within the earth science and engineering disciplines. If someone down the road just came up with an innovative way to engineer greater production, then hire them or their consulting firm to work on your assets and augment your capabilities.

We'll stand here at this point with no further development in the sciences and engineering of oil and gas until such time as those who spend the time, effort, money and energy to develop a new idea are recognized and appreciated by the oil and gas producers. If you think a budget-driven bureaucrat will be the one who breaks the next big idea, keep dreaming. Perez has the following to say.

The interconnection of the technologies of a revolution takes place at several levels.

• They stem from the same areas of knowledge in science and technology and use similar engineering principles.
• They require similar skills for their design and operation—quite often new ones.
• They stimulate the upstream development of a common network of suppliers of inputs and services as well as interdependent distribution outlets.
• Their dynamism is mutually driven through very strong inter-linkages, often being the main market for each other (the more growth and innovation there is in computers, the more growth and innovation there will be in semiconductors and vice versa).
• Their diffusion generates coherent patterns of consumption and use so that the learning in one system facilitates the learning in the next and the installation of conditions for the use of one set of products becomes an externality for the next (once electricity comes to the home for lighting and refrigeration, it facilitates the adoption of radios and vacuum cleaners). p. 191

To reiterate the oil and gas industry will be the prime benefactor by eliminating this blind dark ether of where all good ideas disappear into. Oil and gas companies must become the consumers of ideas, not the destroyers.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Perez Technology Revolutions Part I

In our recent review of Professor Carlota Perez' work. We determined that now is the point in time when the Information & Communication Technology Revolution (ICTR) has begun. Where the last 40 years in communication and computer technology were the installation period. A time when things are developed and installed but still have not all of the associated technologies operating in the marketplace. This last point being reflected clearly in the development of the Internet in the 1990's. Without the Internet their would be no ICTR, and until computers could be developed to the level they are today, the benefits would not, and could not, commence.

Professor Perez has also documented what changes will occur as a result of the ICTR, based on her review of the former industrial revolutions and similar economic phenomenon. These changes include significant upheaval in the markets of existing firms. This upheaval due to the greater efficiencies of those firms built on the new technologies. Professor Perez shows these market upheavals are the 2008 financial crisis, and the 2000 dot com meltdown.

Where we now stand is at what Professor Perez calls the "Deployment" period. Where the value generated by these new technologies lifts all boats. Or as Professor Perez calls it a "Sustainable Global Knowledge Society Boom." We now begin our review of Professor Perez' paper "Technological revolutions and techno-economic paradigms". Her abstract reads as follows;

This paper locates the notion of technological revolutions in the new-Schumpterian effort to understand innovation and to identify the regularities, continuities and discontinuities in the process of innovation. It looks at the micro- and meso- foundations of the patterns observed in the evolution of technical change and at the interrelations with the context that shape the rhythm and direction of innovation. On this basis it defines technological revolutions, examines their structure and the role that they play in rejuvenating the whole economy through the application of the accompanying techno-economic paradigm. This over-arching meta-paradigm or shared best practice 'common-sense' is in turn defined and analysed in its components and its impact, including its influence on institutional and social change.

This is exactly what we need. A road map of sorts of how innovation will be implemented, and how the technologies that are employed to enable this "common-sense" revolution. We know that the future is going to be prosperous, but how, and what will the ICTR look like after it has run its course. That is to say what will the next few years look like.

1. Introduction

People, Ideas & Objects is a reflection that we are Object based developers. "Objects" replacing Professor Paul Romer's "New Growth Theory" of People, Ideas & Things. Using the Joint Operating Committee is the cultural, operational decision making, financial, legal and communication frameworks of the oil and gas industry. The truer that we can sail towards these frameworks, the greater our productivity, as measured in global oil and gas production. Professor Perez begins her analysis of the origins of economic growth.

Schumpeter is among the few modern economists to put technical change and entrepreneurship at the root of economic growth (Schumpeter, 1911, 1939). Yet, strangely enough, he saw technology as exogenous and - together with institutions and social organizations -- 'outside the domain of economic theory' (Schumpeter, 1911, p. 11). His focus was the entrepreneur and his goal was to explain the role of innovation in economic growth and on the cyclicality of the system.

and

This paper will concentrate on technological revolutions and techno-economic paradigms: their definition, the causal mechanisms that bring them about, their impact on the economy and institutions and their relevance for economic analysis. Yet, since these macro phenomena are deeply rooted in the micro-foundations of technical change, the following section will refer to some of the basic theoretical advances made at the micro and meso levels. p. 186

2. Innovation as the dynamic space for the study of technical change

In the May 2004 Preliminary Research Report the key or primary research into innovation was through Professor Giovanni Dosi's "Sources, Procedures and Micro-Economic Effects of Innovation" 1988. There I suggested an application of these "trajectories" as

An excellent example of this would be the discovery of the north-south orientation of horizontal under-balanced drilling in the Jean Marie formation of British Columbia, where knowledge and collaboration lead to a fundamental low cost solution to a technical problem. This simple change, reflecting the effect of the thrust of the Rocky Mountains, has lead to significant findings and deliverability of gas.

Professor Perez notes;

Indeed, the space of the technologically possible is much greater than that of the economically profitable and socially acceptable. p. 186

And points directly to Professor Dosi's earlier works.

The meaningful space in which technical change needs to be studied, therefore, is that of innovation, at the convergence of technology, the economy and the socio-institutional context. That space is essentially dynamic and, in it, the basic concept is that of a trajectory or paradigm (Dosi, 1982), which represents the rhythm and the direction of change in a given technology. p. 186

We see Professor Perez' point about technical trajectories when we understand the north - south orientation of a horizontal leg of a well. Has grown to the point where the multiple fracing of horizontal wells, based on this earlier knowledge, has opened massive deliverability in the shale gas formations.

3. The regularities of technical change: innovation trajectories

It is critical to point out here the development of the multi-frac laterals in oil and gas production. The situation in the May 2004 Preliminary Research Report regarding north-south orientation became common knowledge in the industry in 1997. Why did it take almost a full decade for the common-sense knowledge to develop into the shale gas bonanza that we find ourselves in today?

Changes generally occur slowly at first, while producers, designers, distributors and consumers engage in feedback learning processes; rapidly and intensively once a dominant design (Arthur, 1988) has become established in the market; and slowly once again when maturity is reached and Wolf ’s (1912) law of diminishing returns to investment in innovation sets in. Besides rhythm, a trajectory also involves directionality within a possibility space. That is what Dosi (1982) emphasised when, with the Kuhnian parallel in mind (Kuhn, 1962), he introduced the term technical paradigm to represent the tacit agreement of the agents involved as to what is a valid search direction and what would be considered an improvement or a superior version of a product, service or technology. A paradigm is thus a collectively shared logic at the convergence of technological potential, relative costs, market acceptance, functional coherence and other factors. pp. 186 - 187

The Draft Specification employs this thinking in the Resource Marketplace Module. To accelerate a trajectory necessitates the noted process highlighted in the previous quote. The Resource Marketplace Module suggest that this trajectory is accelerated when the collective understanding of all producers, as reflected in their long term capital budgets, is aggregated and shared in a common interface for other producers and service industry representatives to see clearly what is on the collective producers mind of what is possible in each geographical region.

A similar interface is operational in the marketplace today. It is the Google Health application that provides high quality security to its users. It also is able to take the information that is made available, in aggregate, to search for possible trends and other information that is generally not available in any other form. Welcome to the 21st century. 

The notions of trajectory or paradigm highlight the importance of incremental innovations in the growth path following each radical innovation. p. 187

4. New technology systems and their interactions

Emphasis on the Community of Independent Service Providers and the User communities is important, not just because it is fashionable. There is a defined and tangible benefit to organizing the solutions to these problems. Individuals such as Einstein, Ford and Edison operated in a time when an individual could single handily make a difference. Today collaboration amoung highly motivated individuals are what are necessary to take us to the next level of what is possible. These actions take place in Marketplaces.

Innovation is usually a collective process that increasingly involves other agents of change: suppliers, distributors and many others, including consumers. The techno-economic and social interactions between producers and users weave complex dynamic networks that are what Schumpeter referred to as clusters. Furthermore, major innovations tend to be inductors of further innovations; they demand complementary ones upstream and downstream and facilitate similar ones, including competing alternatives. p. 188

These clusters of innovation are not represented in the bureaucracy. The ten years needed to go from single to multiple fracs of a horizontal lateral is a long time. We need a far more capable and dynamic means of organizing our approach to the heightened demands for energy. 

The interrelatedness of technologies and of the knowledge and experience bases that underlie their development, together with the infrastructures and service networks that complement them and the multiple learning processes that accompany them, provide externalities for all participants and competitive advantages for the economy in which they are embedded. p. 189

Recall what Ludwig von Mises said about the Industrial Revolution. Quotation from Ralph Raico.

Back in the early 1700's there were slums, people were poor, people died, every possible plague. Mises says you cannot understand the industrial revolution without understanding the western world was undergoing an un-precedented population explosion. For example, England in 1750 had a population of about 6 million; by 1850 the population was 24 million. The question was how would these new tens and tens of millions of people survive? Mises said the industrial revolution was the answer to the population explosion. That's how they survived, by society becoming immensely more productive.

Today society needs the oil and gas industry to be "immensely more productive", there is a lot at stake. If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

More of Professor Perez later this week.

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Account Manager Position

The Account Manager Position is a senior position within the People, Ideas & Objects organization. Senior from the point of view of their understanding of the oil and gas industry, senior from the point of view of how well they understand the producer firm(s) they represent. Note that they are representing the producer firm and not a specific Joint Operating Committee. Ideally these individuals will be seconded to People, Ideas & Objects from the producer that they originated from.

Account Manager's are the conduit between the members of the Community of Independent Service Providers (CISP) and the users that are resident and employed at the producer firm or within a user community. If members of the CISP need clarification on a finer point of the producer's needs, they will contact the Account Manager for that producer who will secure the users necessary to clarify the point. Alternatively, a user who has an idea on how better to do their job can contact the Account Manager who will provide the CISP members and People, Ideas & Objects developers to be at the disposal of those users.

Users can and will be members of the producer firms, and not necessarily part of People, Ideas & Objects. User groups may be comprised of 100% of the producer firms staff. CISP resources are members of People, Ideas & Objects from the point of view that they have custody of the applications current and future software applications design. Starting with the Preliminary Specification and continuing on with tuning and delivering innovative People, Ideas & Objects software products to the industry.

Members of the CISP will source payment for their design and analysis work from People, Ideas & Objects directly. They will also bill the producer firms for the work they conduct at the producer firms on behalf of People, Ideas & Objects. Roles such as training, implementing and assisting the producer staff with the People, Ideas & Objects applications. Users will be compensated for their time in any and all activities by either the producer firms, as a member of the CISP or as a consultant outside of the CISP. People, Ideas & Objects will provide tools in which users can affiliate themselves and organize themselves in generic membership forums.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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