Dosi Nature of Technologies Part I

The quality of the recent working papers has been spectacular. On topic, leading edge and practical to the work that is being done here at People, Ideas & Objects. Professor's Baldwin, Perez and Orlikowski have provided strong support for the potential users in the oil and gas industry who know the status-quo is not working and as a result are looking for alternatives.

Professor Baldwin's working paper on the Mirroring Hypothesis started to list what ingredients were necessary within teams to enable an innovative software development capability. And through the mirroring hypothesis, the software development capability will define and support the innovative oil and gas producer.

Professor Giovanni Dosi's 1988 paper "Sources, Procedures and Microeconomic Effects of Innovation" was the primary research document used in the May 2004 Preliminary Research Report. Much like Professor Perez, Professor Dosi is talking about technological paradigms. The abstract of this new paper "On the nature of technologies: knowledge, procedures, artifacts and production inputs".

In the most general terms, a technology can be seen as a human-constructed means for achieving a particular end, such as the movement of goods and people, the transmission of information or the cure of a disease. These means most often entail procedures regarding how to achieve the ends concerned, particular bits of knowledge, artifacts and of course specific physical inputs necessary to yield the desired outcomes. In fact, the procedures and the underlying knowledge they draw upon, the physical and intangible inputs implicated, and the performance characteristics of outputs are different but complementary aspects of what technology is. These things are the object of this short essay. p. 173

In the budget discussion that was yesterday's post. We see the context of these recipes within firms and markets. We are standing on the shoulders of several generations of giants. To tear up the bureaucracy resonates with all people who have had the displeasure of dealing with them. But to do so without an alternative is reckless and dangerous. To imply that the alternative can be brought to bear "just-in-time" or the bureaucracy won't fail on its own; are two ideas that we should not accept.

The financial crisis was brought about by bank managers using the same bureaucratic thinking that I see in oil and gas today. The bank management was compensated handsomely as they drove the industry off a cliff. The amount of shareholder value that was wiped out by management should frighten everyone in business today. After all that has transpired in the past two years, we see the bank bonus and compensation continue at record velocity! These bank managers were very wise not to have invested in any alternatives to their ways and means.

Are the leadership in the energy industry going to wait for the same thing to happen to them?

1. Technologies as recipes

If we think of only the components necessary to drill a well then we are missing a large portion of tasks and time involved. These also don't necessarily capture the methods that make the drilling of the well successful. These are the attributes that need to be designed, analyzed and implemented in order for the next generation of organizations keep us from the return of the dark ages.

The conception, design and production of any artifact generally involves (often very long) sequences of cognitive and physical acts. It is therefore useful to begin by thinking of a technology as something like a ‘recipe’ entailing a design for a final product which, much like a cookbook recipe, concerns a physical artifact together with a set of procedures for achieving it. The recipe specifies a set of actions that need to be taken to achieve the desired outcome and identifies, if sometimes implicitly, the inputs that are to be acted on and any required equipment. p. 173

The critical nature of the Community of Independent Service Providers in making the People, Ideas & Objects application modules successful can not be understated. The tacit knowledge contained within that community can not be codified into software. Software, however, can enable and exploit the tacit knowledge through the interactions of the technologies if we are smart enough to do so.

However, in the domain of industrial technologies this is not generally the case: the requisite knowledge and skills are distributed across many individuals and a crucial issue concerns when and how they are called for. No matter how mechanised a process (as in contemporary times), the construction of most artifacts is a team operation. Different people, and groups, are assigned to different parts of the process. How the artifact turns out will depend not only on the overall design and recipe that nominally is being followed (if any), but on how the work is divided, the match up of the skills and understandings of what is to be done under that division of labour with what actually needs to be done, how effectively the work is coordinated and managed and—at least as important—on the effectiveness of the procedures linking what different individuals (and, often, different organisations) actually do. pp. 173 - 174

It is reasonable to suggest, as it is true, that success within the oil and gas industry will be dependent on the CISP and the users who are enabled through the People, Ideas & Objects application modules. This should be stated as the objective, not a boisterous comment by someone who is full of themselves. As members of advanced societies these are the speeds and the altitudes that we are flying at.

Although the distributed nature of technological knowledge limits the accuracy of the ‘recipe’ representation of the nature of technologies, it does help to highlight their procedural dimension. The latter involves problem-solving procedures, in which respect building a car, writing a software package or proving a theorem are not that different (this idea is of course grounded in many contributions of Herbert Simon; see, for instance, Simon, 1987, and, for some elaborations, Dosi and Egidi, 1991). There have recently been attempts to formalise the structure and dynamics of such procedures in the combinatorics of elementary cognitive and physical components underlying the intra- and inter-organisational division of labour and its dynamics (see Marengo and Dosi, 2005; Marengo et al., 2000; Rivkin, 2001; Rivkin and Siggelkow, 2003). p. 174

Professor Herbert Simon is a Nobel Laureate that was quoted in the Preliminary Research Report as saying.

"...What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it" (Simon 1971, p. 40-41).

Taking all that Dosi has stated to this point, assumes that the "noise" of competing attentions are silenced and we have a focus on the desired objectives. Innovation is also about failure as much as it is about success. Can it get much more difficult?

2. Beyond explicit recipes: organisational routines

Luckily we are not starting from scratch. The Joint Operating Committee has been operating virtually since the early days of oil and gas, almost 140 years ago. The breakthrough in the Preliminary Research Report is that moving the well defined compliance requirements of the SEC, Tax and Royalties to align with the JOC's legal, financial, operational decision making, communication and cultural frameworks. Allows us to innovate off of the shoulders of those generations of giants that we stand upon. The JOC is a well defined organization.

A routine is ‘an executable capability for repeated performance in some context that has been learned by an organization’ (Cohen et al., 1996, p. 683). p.174

The existence of the JOC has even survived the ignorance of SAP. SAP's static interpretation of all companies and all industries worked at one point in time. At least that is what we are told. As this overall discussion has revealed, we must aspire to higher levels of capabilities within the innovative oil and gas producer.

Such ‘higher level’ capabilities go under the name of dynamic capabilities (Teece et al., 1997). p. 174

For the oil and gas industry to become more dynamic, says everything to me. Decisions, decisions and even more decisions. I see the industry occupying people's time with so many decisions that the current bureaucracies will choke and explode. If the industry is being run off the cliff by management isn't the question. Just as the former Soviet Union became so inefficient to the demands of its people, the bureaucracies in oil and gas are heading down the same well worn path. The banking industry provides us with current experience as to how vested, entrenched and corrupt management can become. To me the only question left to ask is; would it be more detrimental to society if the oil and gas industry collapsed like the 2008 financial crisis?

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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Budget Update - Midway

We are now half-way through the 2010 budget drive. I have received no indication from any producer, shareholder, investor or group. No commitments and no money.

Recently we detailed the difficulty that People, Ideas & Objects has had with the entrenched management of oil and gas. This conflict is contrasted by the strong academic and "common-sense" nature of the Draft Specification, and research here on innovation in oil and gas. It was recently noted that the potential lack of funding of our budget, would prove to those shareholders and investors that the current management of oil and gas will never fund this development. It eliminates the need for their "skills" and therefore management will not do the altruistic act of falling on their swords.

In the Preliminary Research Report it was noted that software defines the organization. Therefore to change the organizational structure requires that the software be built first. To represent this relationship I coined the phrase that "SAP is the bureaucracy". Management have perverted this thinking and entrenched their positions by never sponsoring any software.

Yesterday Shell announced they were selling up to $10 billion in assets. This is the primary mechanism that I see the industry investors and shareholders securing ownership of the industry. As these producers management continue to rationalize their investments, firms using the People, Ideas & Objects software, Community of Independent Service Providers and users will enable this prospective ownership class to compete for these assets. Without the software being built first, this will not happen. A competitive method of managing oil and gas assets needs to be built in the software first.

To suggest otherwise is dreaming in technicolor. We live in advanced societies where specialization and the division of labor have been applied aggressively for over 200 years. Organizations, built on the structured hierarchy are unable to generate value and are actively destroying value with each passing day. Nonetheless, to approach the problem with an effective solution demands that higher levels of specialization and more advanced division of labor be inherent in the replacement organization. To muddle along in this transition is foolhardy and dangerous. We stand on the shoulders of many generations of giants and need to consider this in any transition. Spontaneous order may occur, but will it be efficient?

The Preliminary Specification, the Detailed and Final Specification that follow, consider these important principles be analyzed, discovered, designed and implemented. I began this process in September 2003 and received a ferocious response from the existing industry bureaucrats. I have kept my powder dry and my candle lit, now is the time to add the necessary resources to this process. If the bureaucracies are not creating any value, at what point do they fail, and what alternatives will be available to maintain the sophisticated standard and quality of living we enjoy? At some point, and I am suggesting on March 31, 2010, we will need to stop blaming the bureaucracy and seriously consider who's fault a failure might be. I know it will not be mine.

People, Ideas & Object recently developed a proxy method that would enable the investors and shareholders to vote for the oil and gas companies management to support this budget process. By asserting themselves in the development of the proxy, and voting on the resolution at the Annual General Meeting, might provide a mechanism where the investor and shareholder need not fund this budget directly.

Our budget fees are effective January 1, 2010. Penalties are effective on March 31, 2010 at 300% of the fees. All fees and penalties, if applicable, from January 1, 2010 are required to be paid in full before participation in any of the communities or developments. Companies that chose to wait will find that they are less capable of influencing the direction of the development to their specific needs. Use of the software, when built, will require all fees and penalties from January 1, 2010 be paid in full. Fee's for the calendar year 2010 have been determined to be $1 /boe / year. [A firm that produces 50,000 boe / day would be assessed $50,000.00 in fees and, if applicable, $150,000.00 in penalties for 2010.]

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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Top 18 Compelling Reasons

As promised an updated list of the reasons that users and producers should get involved with People, Ideas & Objects.

Twenty Trillion

$20 Trillion in additional capital expenditures to meet the market demand for energy. This is the generally agreed to scope of the problem that faces the oil and gas industry over the next 20 years. A business environment that is more difficult for all producers concerned. Success in the past is not a precursor to success in the near to long term.

$39 Billion Oracle Investment

What was once listed as a detriment is now a competitive advantage. Oracle has expended their money in a focused manner based on a broad vision of what IT could be. The vision became evident to People, Ideas & Objects during the five hour presentation explaining Oracle's revised strategy after their acquisition of Sun Microsystems.

As I write this we find that Oracle has beaten Alinghi 2 - 0 in the 33rd Americas Cup. Larry Ellison brings the cup home!

Williamson's Nobel

Transaction Cost Economics (TCE) has been formally recognized by Professor Oliver Williamson winning the 2009 Nobel Prize in Economics. TCE has been used extensively in the analysis and design of the People, Ideas & Objects Draft Specification.

Academics focused on organizational change and technology

We continue to see the premier researchers focus on organizational change and technology. The quality of the research being conducted is topical and valuable to the work being done in People, Ideas & Objects. It provides particularly strong support for the Users and oil and gas producers to get involved in this software development project. Giving direction on how to mitigate the fall out from the financial crisis and guidance as to where the future will provide the greatest value.

Fund the Budget

A call for $10 million during 2010 to support the user community and start the research and design work on the Preliminary Specification.

Value proposition - Competitive advantage

People, Ideas & Objects is based on a fundamental business model and value proposition. Producers collectively pay for the software development costs plus an element of profit for People, Ideas & Objects. This eliminates the large, costly and mostly ineffective SAP system installations that producers know don't work.

Our commitment to the oil and gas producer is that People, Ideas & Objects is the most profitable means of oil and gas operations.

User Interface

I recently documented how the User Interface (GUI) of People, Ideas & Objects would be based on Sun Microsystems Project Wonderland. Providing a "gaming" interface similar to the World of Warcraft. These will be of particularly value in the Marketplace Modules such as Petroleum Lease Marketplace, Resource Marketplace and Financial Marketplace. Where producers and users will be able to interact with other avatars and negotiate agreements, strike deals and all from the comfort of where ever they are physically located.

Perez the Information & Communication Technology Revolution (ICTR)

We are fortunate to be living at a time when the level of economic change is substantial. The old ways are being replaced by new and innovative means based on the Information & Communication Technology Revolution. Professor Perez has detailed the point where we are at in this fundamental transition. A transition to a far more productive way of life. Her work provides people with the understanding that economic stimulus is limited, and our future is waiting for us in organizational change and technology related areas.

Management is wrong

Management's Resistance to People, Ideas & Objects has been wrong. This is clearly evident as we look on the past 4 years. The time to move on making the change to the Joint Operating Committee as the key organizational construct of the innovative producer is today. Management are being called out by People, Ideas & Objects to make sure the transition begins as soon as is possible.

People, Ideas & Objects is Open Source

Although we do not qualify as a pure Open Source project. Our software code is open and available for the communities to review. Producers should establish an auditing procedure of the code to ensure it is compliant to their needs. These and other advantages of this openness are what People, Ideas & Objects is providing.

Penalty Structure of non - participation in People, Ideas & Objects.

For producers the costs associated with this software development project is fixed in terms of time. Effective January 1, 2010, all producers are being assessed a cost to participate in these developments. Companies that choose not to participate past March 31, 2010 will be assessed a 300% penalty when and if they do decide to join. Non participating producers will not be able to use the software until payment is made in full. And most importantly, producers who join later will have difficulty in asserting their needs within the established user communities.

Tech Company Earnings

Technology firms such as Apple, Cisco and Google are able to make substantial profits from their mature technology businesses. This is a trend that was noted in Professor Perez' research and is a direction that people can see is where the prosperous future lies.

Oil and Gas company earnings

Even with oil and gas prices being substantially higher then they were in prior decades. Costs have escalated and continue to do so. Oil and gas companies are seeing a downward trend to their earnings and production profiles. The business is becoming complex and those that were profitable in the low energy price era have no competitive advantages in this higher priced era.

Oracle

We are a customer of Oracles technologies. These technologies will be the standard component of the People, Ideas & Objects development environment, cloud offering, database, Java etc. Everywhere, from stem to stern, Oracle technologies will be deployed in making People, Ideas & Objects. This provides producers and users with a solid, reliable and scalable infrastructure in which to innovate and conduct their business operations.

Scrum / Agile

People, Ideas & Objects competitive advantages are many. One of these is the agile / scrum software development methodology that has developed in the last few years. Agile teams are 500 to 1000% more productive then prior methodologies. Velocity is the term used to note the speed at which these teams work. The overall reduction in costs and the faster turn around time are two of the larger benefits users and producers will realize through People, Ideas & Objects.

Complex Adaptive Systems is the technical term that captures the agile methodology.

Policies, Procedures & Positions.

Many policies, procedures and most importantly positions are being detailed on this blog. The positions include the Product Owners and Account Managers. Now is also the time for the user community and the Community of Independent Service Providers to begin their involvement in this software development project.

The five frameworks of the Joint Operating Committee

The legal, financial, operational decision making, communication and cultural frameworks of the industry are held within the JOC. Moving the compliance (Tax, Roy, SEC) and governance frameworks of the hierarchy in alignment with the JOC will define and support the innovative oil and gas producer.

Breaking the mirror. Actionable Transparency.

A concept that is introduced by Professor Carliss Baldwin in the "Mirroring Hypothesis". Actionable Transparency is a term that accurately captures the innovativeness of People, Ideas & Objects, the innovative oil and gas producers, working together to increase productivity.

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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Transaction Cost Economics and 24

A light posting on a serious topic. The blog Stumbling and Mumbling has an analysis of Transaction Cost Economics (TCE) and the television show "24". The analysis shows why TCE is so valuable in determining, among other things, the barriers between firms and markets.

People, Ideas & Objects has used TCE to define the barriers between firms and markets in oil and gas. Specific modules that define and support the market are of course, the Petroleum Lease Marketplace, Resource Marketplace and Finance Marketplace. Have a look at the analysis of how Jack Bauer benefits and is hindered from both the hierarchy and a freelancing approach to his job.

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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Hagel - Networked Creator

One of the posts that is due is the top 20 compelling reasons that users and producers should participate in People, Ideas & Objects software developments. Within that list is the tremendous volume of top shelf academic research. As was indicated before, the shift in economic research from analysis of the 2008 - 2009 financial crisis. Has been replaced by a focus on organizational change, technology and the dynamics of those and other variables. Absolutely stunning.

One of those that we follow closely here on the innovation blog is John Hagel. In the Preliminary Research Report he was able to define the business aspects of Web Services and we have followed closely since. His blog post today has him hitting another ball out of the park. In our desire to list the reasons that we appeal to the potential users and the Community of Independent Service Providers, this research is ground-breaking.

In "Shifting Identities - From Consumer to Networked Creator" the user can see how their work-life balance will change and become far more productive and rewarding. It has been mentioned many times in the innovation in oil and gas blog that intellectual property has to make up some element of your future service offering. Either your own proprietary IP, or access to a community of IP such as People, Ideas & Objects. Adding this idea to those of Hagel's will provide you with a road map of how things will play out.

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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We'll be watching...

The Wall Street Journal has an article on the topic of Peak Oil today. The article documents a report prepared by an "Industry Taskforce on Peak Oil and Energy Security". Much like the previous airing of concerns, that energy deliverability is becoming progressively more challenging. Oil and gas industry management are able to brush aside the report with the standard we're not concerned attitude.

But the work of the Industry Taskforce on Peak Oil and Energy Security shouldn't be disparagingly dismissed. Its arguments are well founded and lead it to the conclusion that, while the global downturn may have delayed it by a couple of years, peak oil—the point at which global production reaches its maximum—is no more than five years away. Governments and corporations need to use the intervening years to speed up the development of and move toward other energy sources and increased energy efficiency.

I do not have the requisite understanding of geology and engineering to determine if this peak oil theory is valid. I do know that management feels it's not their problem. I do know that today's global production of 120 million barrels of oil equivalent per day is impressive. I see how the costs associated with oil and gas exploration and production have escalated over the last decade.

For management to assume that the upswing in global oil and gas production will continue is questionable. And appears to me to be an act of denial of some basic facts. It also imputes a convenient lack of accountability within the industry. One that does not consider why costs have escalated so substantially. If they are so confident that peak oil is invalid, where is their data. Who will have the evidence necessary to show that management should have acted and didn't? By then most, if not all of the management, will be toasting themselves and their counterparts from the banking industry on some tropical beach.

If we wait until 2015 to score this gotcha moment then it will be far to late for all the kings men and all the kings horses to put it back together again. There is money to be made in this high energy price environment. We should embrace the opportunities that face us and do all that we can to move to the innovative mindset necessary. My read of the situation is that management are not that interested in working that hard. Muddling along has always worked before. Therefore we should let them know, during this next five years, that we'll be watching.

Is it reasonable to assume, as management does, that by 2015 SAP will become the innovative system they need. We should question management as to how this transition will come about. What about 2020, will the industry have the means to operate at the pace necessary to meet the market demands for energy. Or will management continue to deny the peak oil theory as they move at the snails pace of last century.

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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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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