McKinsey Organizational Capabilities

McKinsey have published the results of a recent survey. Their survey was on the topic of building organizational capabilities. People, Ideas & Objects is designed to provide the oil and gas industry with an ERP systems development capability. A user driven capability that provides the innovative oil and gas producer with the most profitable means of oil and gas operations. Key to this objective is the ability of the producer firm to focus on its strategic assets. And build the science and engineering capabilities necessary to exploit their talent and assets.

I would argue that with the financial crisis and the soon to be insatiable demand for energy. Will require industry to focus on developing these capabilities. However, I am satisfied with the survey result suggesting:

Nearly 60 percent of respondents to a recent McKinsey survey say that building organizational capabilities such as lean operations or project or talent management is a top-three priority for their companies. Yet only a third of companies actually focus their training programs on building the capability that adds the most value to their companies’ business performance.

The last sentence of that quotation is an area where the Community of Independent Service Providers have another business opportunity. It was noted here the other day that the CISP could research, develop and implement principles of and consulting services for the area of organizational behavior. Building organizational capabilities in focusing the producer on the engineering and earth science disciplines may very well be another area where the CISP could develop a substantial business. That is not to suggest that the CISP is involved in the direct science and engineering, McKinsey provides a good definition of the context.

We defined a capability as anything an organization does well that drives meaningful business results. The survey explored which capabilities are most critical to a company’s business performance and why they focus on the capabilities they do. It also asked executives how their companies create and manage training and skill-development programs and how effective those programs are in maintaining or improving on their priority capabilities.

I believe the oil and gas needs a strong software development capability. Software is an area where value can be built in all industries. If users are able to think of new and innovative ways of doing business, the ability to change to those new ways is dependent on the software that defines and supports the organization. In a science focused business such as oil and gas. Where innovation on those sciences will accelerate substantially in the decades to come. The capabilities within the producer, and the software development capability that is discussed on this blog, are areas where value can be built. According to the McKinsey survey results, this concern / objective is not generally shared.

Sixteen percent of respondents in China and 20 percent in India say capability building is a top priority for their companies—versus 10 percent overall and 8 percent in North America.

and

Respondents at companies whose training programs are effective in maintaining or improving the drivers of business performance also say their companies pay more attention to tools that support or enable capability building, such as standard operating procedures, IT systems, and target setting and metric tracking.

People, Ideas & Objects has been resisted by the management of oil and gas. They know that if there is no software developed that competes with their way of doing business, they can retire in riches. Building a capability is managements conflict of interest.

In addition, although resistance to change is often viewed as a barrier to building new capabilities, almost as many respondents to this survey identified a lack of resources and an unclear vision as barriers.

Within People, Ideas & Objects I have specified a Technical Vision of how IT will impact oil and gas. There is also a User Vision of how the users will interact within the system. And the Draft Specification details a vision of how and what the software will do for the oil and gas producer. What is management's vision of the future?

To reiterate this is an area where much value can be created. The producer firms will be challenged in ways that we can't imagine today. To prepare for this eventuality, the Community of Independent Service Providers will be able to prepare their clients in the fashion that McKinsey discusses in this survey's results. These are the types of businesses that can be developed by the CISP. I will continue to highlight areas where I think the most value can be generated to the producers, and earned by the CISP.

If your an enlightened producer, an oil and gas director, 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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Google App Script and App Engine

Each user of People, Ideas & Objects is provided with a "Google Apps account for your domain". This includes Gmail, Calendar, Documents [Document, Presentation and Spreadsheet] and Sites applications. If necessary users will also be provided with access to SalesForce.com applications. All of these applications are included and accessed as part of the Security & Access Control Module of the Draft Specification. There are many other Google applications like Contacts, Start-Page, Groups and Chat but two of the most useful to the users might be Google App Script and Google App Engine.

Recall the purpose of the Security & Access Control Module is two-fold. First providing the data security and integrity of the producers information, and access control based on the Military Command & Control Metaphor. It is this module that enables and limits the users domain to that which they are authorized by their client producers and Joint Operating Committee's.

What People, Ideas & Objects provides is the software development capability that users need. Transaction processing, transaction design and marketplace application modules to name a few types of functions. This development capability is to build the software tools users need to exercise their tacit knowledge of the oil and gas industry. There is also a small area of functionality where it may be necessary to have ad-hoc queries and reports generated. Having the People, Ideas & Objects developers involved in these application types becomes expensive.

I'm assuming that the line between the two forms of processing, heavy industrial vs. lightweight, is understood by most users. This post is about the ad-hoc lightweight tools that users will have available to them within the Google Apps applications that are embedded within the Security & Access Control Module of the Draft Specification.

Google App Script is very similar to the advanced features in Excel. The ability to access data however, I think, is much more advanced then Excel. These Java Script scripts are not limited in any fashion. The user therefore inherits the web interface for these programs that they might write. Google has recently published a tutorial on the use of Google App Script that shows the power of this technology. If you have a Google account you can access these from within the Spreadsheet application included in Google Docs. The tutorial and API are available to get you started.

Google App Engine is substantially more capable. Particularly from the point of view of the Java based service. There are only two areas where the user is limited from accessing. The file system and threads. Best of all the SDK is able to be run in an IDE like NetBeans or Eclipse (both of which are free) which allows you to leverage the entire Java community. Powerful stuff, where the initial costs of running applications is next to nothing. Members of the Community of Independent Service Providers could also use Google App Engine to run applications for their own businesses.

I see a very large role for the user based applications described in this post, the Google tutorials and elsewhere. Having a "Swiss Army Knife" type of application is very valuable. The key difference between these services and the Draft Specification Modules is the ability to write data back to People, Ideas & Objects databases. That has to be handled in a fashion that can't be accommodated with the two tools we are talking about here today. However, Google App Engine provides you with access to Google's Big Table to store your own data.

If your an enlightened producer, an oil and gas director, 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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McKinsey a Case for Change

McKinsey Consulting have another interview that is topical for the work we are doing here at People, Ideas & Objects. This interview is with Stanford Professor Chip Heath who has written a book called "Switch: How to Change Things When Change Is Hard".

The Preliminary Research Report reviewed Noel Tichy's book "Managing Strategic Change Technical, Political and Cultural Dynamics." Since that time there has been no real discussion on this web log about how change is managed within organizations. Organizational behavior is the difficult work of building support for change and dealing with the psychological aspects of human nature. Which are not my personal forte'. This topic is an area of great concern and of currently little capacity to deal with it. Therefore it is one of the areas that I think the Community of Independent Service Providers can take on and build significant value for the users and producers of People, Ideas & Objects software applications.

Professor Heath documents that we share a disdain for "best practices". He suggests that we incorporate "bright spots" which is a way of highlighting the areas that we are good at.

Chip Heath: Many companies try change themselves by benchmarking other organizations and borrowing their procedures or practices. The irony of benchmarking is that we’re essentially telling organizations to be more like GE or Apple or Nike. As Dev Patnaik, the author of Wired to Care,⁴ said to me one time, we know this doesn’t work on a personal level: we resist when members of our families say, “Be more like your brother.” The principle of bright spots is that you shouldn’t try to be more like Apple; you should try to be more like yourself at your best moments. Think about what you’ve done in the past, or what you’re doing now, that has worked tremendously well.


I won’t say there’s no value in benchmarking. But if you believe that organizations differ in their cultures, capabilities, and structures, there’s something fundamentally odd about saying that you want to be more like another company that has a very different culture, structure, and set of capabilities. At the very least, the idea of looking to your own bright spots is a useful addition to your tool kit.

Well stated. He also comments about fear as a motivator for change. I noted the sense of urgency in the oil and gas marketplace toward the need for change had diminished since the economy has recovered. That a complacency to make the needed changes was beginning to show.

The Quarterly: What’s your view of the notion that change is easier when you have a “burning platform” from which to motivate it?

Chip Heath: That is one of the silliest pieces of business jargon. The idea of the burning platform is that people only change when they’re scared. But fear, as an emotion, creates tunnel vision. Police officers call this “weapon focus”: crime victims can often give great descriptions of the weapon, but nothing about whether the assailant was tall or short or had facial hair, because they focus on what evoked their fear.

That kind of tunnel vision is devastating in times of change. If you’re doing everything basically right and you just need to improve execution, you can scare people and they’ll execute better and faster. But that’s not true of most change situations, where you need to be doing something new. Fear is the worst motivator here because it makes people work harder at what they did in the past.

Good news to this project. As I note above, my aptitude for organizational change is low. I thought the fear as a motivator was really the only time that people do act. I see now that the financial crisis has shown people what is and isn't working and the need for change in a constructive and positive environment is what we need.

I would direct his final comment to those who need to act. The senior executives of oil and gas firms.

The Quarterly: What messages do you want to leave with senior executives who are seeking to catalyze change?

Chip Heath: Pay attention to creating an emotional case for change, not just an analytical one. Scale up bright-spot successes. And use your power as a top leader to smooth the path to change. Your people are ready to step up to the plate, but if systems or procedures are getting in the way of change, you are the one with the power to eliminate them.

This article reflects the importance of this topic to business. What I see happening is that someone who has the skills and aptitude to apply this knowledge to join the Community of Independent Service Providers (CISP). They could then review the research of Heath, Tichy and others to develop the planning and implementation of the appropriate change management elements. Then provide a comprehensive change management service for the CISP, the developers, users and producers.

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

If your an enlightened producer, an oil and gas director, 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 The New Technologies Preview

I'm preparing the many posts of our review of Professor Carlota Perez' paper "The New Technologies: An Integrated View". In this document it becomes very clear to me why the situation at People, Ideas & Objects is the way that it is. That is of course, it has to be that way. The situation that I am talking about is the strong conflict between this software development project and the existing bureaucratic ways and means of the industry. As much as I would like it to be less confrontational, there is no choice in the matter.

It's about competition. The old competing against the new. The old failing and being replaced by a bottom-up rebuilding of the industry. Professor Perez states;

The crisis is truly a process of “creative destruction” but not only in the economy but also in the socio-institutional sphere. The new upswing can only be unleashed by means of vast socio-institutional innovations, in response to the requirements of the new paradigm and geared to facilitating the full transformation seething in the productive sphere. p. 16

And as much as we would like to have this transition managed in a constructive way, that's not in the cards. The bureaucracy has made their choice not to support these developments. That fact is very clear to me, and hopefully that will become evident to the energy company shareholders, directors and investors in this 2010 budget drive.

What began as the expectation of an enjoyable review of Professor Perez' 1986 document. Has turned into the discovery of a significant piece of research. I don't know how many posts will be the result of the review, but I expect to take the time that a document of this quality deserves.

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

If your an enlightened producer, an oil and gas director, 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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McKinsey Internet of Things

We have another McKinsey document that provides a keen insight on how the Information & Communication Technology Revolution will affect everyone. This paper entitled "The Internet of Things" is very much on topic. I highly recommend reviewing it.

Of particular interest is the fact that this article dove tails with the People, Ideas & Objects Technical Vision. Recall this vision suggests that since the oil and gas industry is comprised of sciences around heat and pressure, the use of sensors to monitor and control elements of the production cycle is possible. This monitoring and control would help in making the industry more productive and enhance the business decisions made, if, firms were able to deal with the volumes of data.

The four cornerstones of the Technical Vision are as follows.

• IPv6 - Providing unlimited addressing for those sensors to be accessed and controlled.
• Java - Strong Static Typing providing assurance that the sensor your controlling is really the one that you want, and not a mistake.
• Wireless - Ubiquitous networks anywhere, anytime.
• Asynchronous Process Management - The ability to deal with data and information in a more controlled fashion.

A couple of interesting points that McKinsey suggest the "Internet of Things" could provide are as follows.

Automation and control

Making data the basis for automation and control means converting the data and analysis collected through the Internet of Things into instructions that feed back through the network to actuators that in turn modify processes. Closing the loop from data to automated applications can raise productivity, as systems that adjust automatically to complex situations make many human interventions unnecessary. Early adopters are ushering in relatively basic applications that provide a fairly immediate payoff. Advanced automated systems will be adopted by organizations as these technologies develop further.

The impact within oil and gas could be much higher productivity and greater value. The scenario that I have detailed on this blog is that of a pricing model that provides the producer with price-maker characteristics. The scenario has the Joint Operating Committee deciding that their production costs of $50 / barrel require that production begin to be scaled back 25% at $80, 50% at $70, 75% at $60 and shut-in at $50.00. The input being the market price would drive control systems to shut the well down to the correct level of production. Otherwise producers may find they continue to produce at a loss and the price drops to $25.00. This being a predetermined and agreed to threshold where the operational decision making authority resides - The Joint Operating Committee - and as a result can be operated in an automated fashion.

Software to aggregate and analyze data, as well as graphic display techniques, must improve to the point where huge volumes of data can be absorbed by human decision makers or synthesized to guide automated systems more appropriately.

McKinsey go on to suggest that these types of systems will require new organizational models be adopted by firms.

Within companies, big changes in information patterns will have implications for organizational structures, as well as for the way decisions are made, operations are managed, and processes are conceived. Product development, for example, will need to reflect far greater possibilities for capturing and analyzing information.

And a dedicated software development capability, like that which is discussed here at People, Ideas & Objects.

Companies can begin taking steps now to position themselves for these changes by using the new technologies to optimize business processes in which traditional approaches have not brought satisfactory returns. Energy consumption efficiency and process optimization are good early targets. Experiments with the emerging technologies should be conducted in development labs and in small-scale pilot trials, and established companies can seek partnerships with innovative technology suppliers creating Internet-of-Things capabilities for target industries.

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

If your an enlightened producer, an oil and gas director, 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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Two Down, One To Go

Two months have now passed in our first quarter 2010 budget drive. The month of March is here and our deadline of the 31st is only weeks away. To date I have received no expression of interest, inquiry, commitment or cash. I get the sense that everyone is waiting for someone else to initiate the process.

The probability of a funding failure occurring March 31, 2010 is very real. As I have indicated, every attempt will be made to keep the project moving forward, however, without financial support this may become extremely difficult and in my opinion, unnecessary. What will be the cost of any funding failure? The users deserve the financial support of the industry.

The methods used to fund software development in the past have failed. Methods that have been successful for the SAP's and other large vendors. If software for oil and gas was a lucrative business. Where producers were presented with new and innovative software products, there would be no demand for this blog's research. Raising capital to fund software development in oil and gas ceased decades ago. There is a problem with the expectation that venture capitalists will fund the innovative software developer. The problem is the funding doesn't exist, particularly if the software developer doesn't have industry support of any bottom-up initiative.

The venture capital and bank funding avenues are closed. With the structure of this development, of providing a software development capability, with the source code being available for review, there are no assets in which to pledge to the capital markets for funding. This is a licensing model of Intellectual Property for revenue generation. Where the licensing of the Intellectual Property to the industry is how the software development revenues are generated. To suggest that the investment or banking community will be involved at any time during this project is incorrect.

Recall that one of the objectives of this budget drive is to prove the bureaucracy will not fund People, Ideas & Objects. Our appeal is to the directors, shareholders and investors of the oil and gas producers. Our research shows the use of the Joint Operating Committee is the direction in which the industry should move toward. That this transition is supported by strong, top level academic research. What alternatives have the bureaucracies proposed to deal with the issues of the industry? Within the transition to the Joint Operating Committee, the ownership class have an opportunity to increase their governance over their assets. That is the basis of this budget appeal.

I have also argued the bureaucracies are currently the beneficiaries of 100% of the proceeds of oil and gas sales. At today's prices, annual global oil and gas revenues are $3.4 trillion. Why is it expected that venture capital would be needed for these software developments, or for that matter, any oil and gas innovation? The parsing of financial resources to "appropriate" providers establishes the oil and gas bureaucracies control and influence over every aspect of the industry. The problem should be clear, they have done nothing in the area of software. When bureaucracies control the competition to themselves (the software) it is not in their best interests to sponsor People, Ideas & Objects.

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

If your an enlightened producer, an oil and gas director, 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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Pisano Science Based Businesses Part III

I have removed a large portion, Sections III and IV, of this paper. These sections discuss the "Science Based Business" in terms of its classifications and definitions. I recommend that everyone read the paper, however, I think it is strictly academic to classify the energy industry as a science based business. It is interesting reading, however preaching to the converted would be a waste of our readers time.

This last part of our review of Professor Pisano's paper "The Evolution of Science-Based Business: Innovating How We Innovate" concludes with some powerful application of the lessons from Professor Alfred D. Chandler.

VI. Applying the Lessons of Chandler

Why are we concerned about the performance of the oil and gas industry? And why does that concern center on the organizational structure of the oil and gas firm and it's associated markets? Professor Pisano answers these questions in a way that everyone could generally agree.

The fundamental lesson from Chandler is that while technological progress creates potential for economic growth, that potential can only be realized with complementary innovation in organizations, institutions, and management. This lesson has clear implications for science‐based sectors of the economy. Progress in the science bases of medicine, agriculture, advanced materials, and energy has enormous potential in coming decades. Yet, this potential will go unrealized without the design of appropriate organizational, institutional, and managerial models. One purpose of this essay was to show that, using the case of biotech as a reference point, we have not yet found an appropriate model for science‐based business. pp. 27 - 28

I agree with Professor Pisano, "we have not yet found an appropriate model for science-based business". Is the Joint Operating Committee the ideal organizational construct for the energy industry? We don't know, that is we won't know until such time as this research has been put to the test. In our research we found the science and innovation need to have certain characteristics that are inherent in the JOC. This is a direct result of the JOC being the cultural norm for global oil and gas operations. The problem is the JOC is not the ways and means of the industry from a compliance and governance point of view. Those frameworks, for whatever historical reason, have been handled by the hierarchy.

What this software development project does is move the compliance and governance of the hierarchy into alignment with the five frameworks of the JOC. To align all of these frameworks within the firm and market definitions of the Draft Specification will provide tangible benefits. And help the energy industry to better meet the markets demand for energy. But will it be the ideal organizational construct for this science based business? We don't know, and we won't know until such time that we can learn from the task at hand. I can assure you the bureaucracy is not keeping up to the demands of today, and that it is not going to in the future. But is the JOC the ideal science based business organizational construct for energy? This may be the better question we should ask ourselves in the long run. And ensure that the means to discover the ideal construct, if it isn't the JOC, will be discovered through the process of People, Ideas & Objects and the Community of Independent Service Providers.

Historical experience both before and after the emergence of biotech shows the limits of both ends of the organizational continuum: the visible hand of hierarchies and the invisible hand of markets. Hybrid organizational forms that mix elements of markets and hierarchies would therefore seem to be an attractive avenue for innovation. p. 28

The hybrid model is inherent in the People, Ideas & Objects Draft Specification. In September 24, 2007's blog post I detailed the optimal / logical boundaries of firms and markets. This was based on the review of Professor Carliss Baldwin's paper "Modularity, Transactions, and the Boundaries of Firms: A Synthesis" That table is reconstructed here.

Construct	Market	Firm
Joint Operating Committee	P	s
Military Styled Command and Control (Governance)	s	P
Transaction Costs	s	P
Production Costs	P	s
Innovation	P	s
Routine, compliance and accountability	s	P
Research	s	P
Development (the D in R&D)	P	s
Financial Framework	P	s
Legal Framework	P	s
Cultural Framework	P	s
Operational Decision Making Framework	P	s

P = Primary
s = secondary


The inclusion of the invisible hand and the visible hand are also present in the Draft Specification. I included Professor Richard N. Langlois work in the Vanishing Hand in a June 24, 2007 blog post. Professor Langlois' vanishing hand hypothesis is directly pertinent to the discussion of finding the optimal organizational construct for the science based business of oil and gas.

"The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates." p. 3

Clearly the research to determine if the JOC is the appropriate organizational construct takes into consideration the research that has been conducted to date. This research is incomplete from the point of view of determining if there could be more attributes, definitions or characteristics in which to add to the software. However, my homework has been done, and it is necessary that the industry fund these software developments before we conclude if the JOC is the right organization, and if we need to conduct any additional research. Back to Professor Pisano who discusses "Organizational Networks" a term that resonates with me.

Organizational networks offer another avenue for innovation. Chandler argued that the firm, not the transaction, was the most important unit of analysis (Chandler 1992) for understanding the boundaries of organizations and structure. Alternatively, it could be argued that in contexts that mix markets and hierarchies, the network of organizations becomes the most interesting unit of analysis (see e.g. Miles and Snow, 1986, Stuart 1998). p. 29

and

Once we move to organizations that are connected in durable networks, this notion becomes much more complicated. The value of the network and the value of individual “firms” in that network become harder to disentangle. p. 29

Call it what you will, what this post clearly reflects is this is the direction that industries must travel. To suggest that the hierarchy will survive the next 10 years is difficult to conceive. Here Pisano asks a pointed question at management itself.

In an essay in honor of Alfred Chandler, an author would be remiss not to mention “management technology” as a critical component of innovation. Chandler documented the emergence of the professional manager and the innovations in managerial techniques needed to run the organizations he studied. This raises the question of whether current “management technology’ is suited to the needs of science‐based businesses. Indeed, the very notion of “professional manager”, while seemingly quaint, indeed characterizes much of the division of labor between scientists and manager today. Consider that today, scientists receive no formal training in management and MBAs receive no training in science. This is a striking gap. The professions of management and the professions of science are still largely separate. p. 30

For what its worth, I agree that the science based business is poorly served by the current "management technology". This is an area that requires as much research as determining if the JOC is the optimal organizational construct for the science based business of oil and gas. Professor Pisano puts the value of these avenues of research in context with this closing comment.

Like railroads and large scale manufacturing enterprises 100 years ago, science based businesses will be a potent source of economic growth in the 21st century. And now, as then, these new businesses demand new organizational forms and new institutional arrangements. In short, we are once again confronted by a serious need to invent new organizational forms and new institutional arrangements to deal with a new set of economic problems. When it comes to the topic of innovation in business organization, there is no better teacher than Alfred Chandler. p. 30

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.


If your an enlightened producer, an oil and gas director, 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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Pisano Science Based Businesses Part II

In our first post on this paper we introduced the scope of Professor Pisano's research in Science Based Businesses. It is reasonable to assume that everyone that is familiar with the processes of exploration and production would agree that it qualifies as a science based business. In this second post we will focus on the influence of Professor Alfred D. Chandler in Professor Pisano's work.

II. Chandler’s Core Propositions

Professor Pisano reintroduces us to Professor Alfred D. Chandler and his work on organizational capabilities and what Pisano calls "Chandler's core proposition". People, Ideas & Objects needs to build the software necessary to support and identify the industry standard Joint Operating Committee. This is in order for the earth science and engineering disciplines to be the driving force in what happens in oil and gas. Innovation on these sciences will be the source of value generation in the industry. Up until recently, innovation was focused on the management discipline and the desire to conduct "best practices" and balance some score-cards. Thankfully those days are over.

Through his studies of the rise of the modern corporation and managerial capitalism in the United States, Chandler advanced three core propositions: 1) technological innovation and organizational innovation are interdependent; 2) new forms of business organization and institutional arrangements are invented to solve specific economic problems; and 3) organizational and institutional innovation is an evolutionary process—nothing guarantees “we get it right” every time. Together, these propositions constitute what might be called a “Chandlerian perspective” on the structure and organization of economic activity. p. 5

1) The Interdependence of Technological and Organizational Innovation

It has been argued that moving the compliance and governance of the hierarchy into alignment with the JOC's cultural, legal, financial, operational decision making and communication frameworks will provide enhanced performance. When we identify and support these changes within the People, Ideas & Objects application modules. Innovation on the earth science and engineering disciplines will be facilitated and advanced. Chandler teaches us that technological innovation does not occur without organizational innovation.

A sub‐set of the innovation community, starting with the work of Nelson and Winter (1982), has long recognized that the “right” institutional arrangements play a critical role in facilitating technical advance and the diffusion of innovations. p. 5

These concepts were reinforced on this blog with recent posts from MIT Professor Wanda Orlikowski and Harvard Professor Carliss Baldwin. Orlikowski's Structurational Model of Technology was used in the Preliminary Research Report to identify technologies influence in organizations. Summarizing her work in the statement that SAP is the bureaucracy. Professor Baldwin's Mirror Hypothesis also identified similar points.

2) Organizational and Institutional Innovation as the Product of Human Invention

The Draft Specification deals with a variety of problems that exist in the industry. One of these problems is the redundant building and rebuilding of capabilities within each producer firm. The ability to resolve any and all possible issues needs to be handled by the firm, and therefore, these capabilities are created within each producer. In the integrated producers we see the same technical capabilities being built within Exxon, Shell, BP, Chevron and others. These are duplications and have reached a size and scope that they can no longer be independently developed and maintained. The underlying sciences are advancing too quickly, and the population of human resources are reaching their limits. What the Draft Specification does is pool these capabilities within the Resource Marketplace Module to enable each and every Joint Operating Committee the ability to dynamically generate the capabilities that they need.

Today, it is easy to take for granted such things as separation of ownership from management, hierarchical organizations, multi‐business corporations, capital markets, accounting and control systems, and other scaffolding of modern economies, as if they were somehow “natural.” Chandler teaches us that there is nothing natural about them. They were inventions. Indeed, virtually every aspect of the business world around us—every organizational form, every management technique, every formal and informal institutional arrangement, every principle of management, and every management function—is the product of human invention. Chandler also helps us understand that often‐but not always‐‐these inventions were made in response to very specific economic problems. pp. 6 - 7

To have this dynamic capability available to those within the industry requires the new organizational models, the JOC, and the People, Ideas & Objects software necessary to identify and support the JOC and the Resource Marketplace. Spontaneous order will not work when we are standing on the shoulders of so many generations of giants. We need to act!

3) Organizational and Institutional Innovation As an Evolutionary Process

We have many significant trends converging at the same time. The Information & Communication Technological Revolution, the transformation of the oil and gas industry to a more complex scientific footing, the boardroom power shifts, and the economic forces that are creating issues and opportunities for all concerned. The last thing we need to do is to sit back and wait for the eventual day when all these forces are correctly aligned and the world breaks out in peace. It doesn't happen that way. We have to act!

The first two points above provide a false impression that economic need and organizational / institutional innovation mesh tightly. But Chandler teaches us that such a strict functionalist interpretation is flawed. Economic needs arise, but the response of organizations is slow, uneven, and not always perfect. p. 7

I would assert that the slow industry response to People, Ideas & Objects is attributable to the fact that it is the bureaucracies that are dictating the pace of change. They know that if they don't sponsor these software developments, they won't get built. I know they know this because I told them in the Preliminary Research Report. Their interpretation is wrong, however, they don't see it that way. That is why the appeal of these software developments are focused on the ownership class of the oil and gas industry. The bureaucracy has it pretty good right now, why change.

The notion that novel institutions and organizations always arise to enhance economic efficiency does not stand the test of historical analysis. p. 8

We must act. This muddling along is heading the oil and gas industry into a situation where the energy consumer will not be able to source their energy. Energy is oxygen to advanced economies. To restrict the volume of available energy limits the potential of man kind.

There are many potential transformative forces shaping business organization in the 21st century. The one I would like to focus on in the remainder of this essay concerns science, and in particular, the way in which business participates in and shapes science. Recent decades have witnessed intensive organizational experimentation in the way science is generated, diffused, and commercialized. Advances in the sciences of life, energy, and materials offer huge promise both to drive economic growth and improve welfare. Yet, to believe that promise will be realized without organizational and institutional innovation would be to ignore the lessons of Chandler. pp. 8 - 9

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

If your an enlightened producer, an oil and gas director, 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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Pisano, Science Based Businesses Part I

Based on the weight of this new paper. We are including Harvard Professor Gary P. Pisano to our list of closely watched researchers. We haven't had the opportunity to add anyone to our list for many years. That's not as a result of a lack of quality content, it's that we are playing catch-up in terms of the work that has been done in the past 20 years. Look for the Pisano label to aggregate the posts that highlight his content. This first Part will highlight some of the assumptions that Professor Pisano is using, the extent of his research and reviews the Introduction of his new paper. The Evolution of Science-Based Business: Innovating How We Innovate.

For the work that we are doing here at People, Ideas & Objects, and particularly the oil and gas producers, this paper has substantial value. The Preliminary Research Report hypothesized the oil and gas industries underlying earth science and engineering disciplines were escalating. Each barrel of oil would require exponential volumes of these sciences as time passed. This underlying demand change in the sciences would lead to higher prices to offset the higher costs of exploration and production, hence rewarding the innovative oil and gas producer. This is the situation in the oil and gas marketplace today.

Professor Pisano's interests are in science based businesses. But more importantly, in the context of organizational and technological innovation.

Alfred Chandler taught us that organizational innovation and technological innovation are equal partners in the process of economic growth. Indeed, one often requires the other. In the late 19th and early 20th century, the large‐scale modern corporation both shaped and was shaped by advances in electrification, mass production, and transportation. Today, the specific technologies driving growth are, of course, quite different than they were a century ago. But, the fundamental lesson—that these technologies may require new organizational forms—is as relevant today now as it was then. p. 2

I would argue that technologies enable new organizational forms. Through our review of Harvard Professor Carliss Baldwin's research. People, Ideas & Objects have detailed a modular specification and a division between markets and firms in the Draft Specification. Information Technology (IT) defines and supports organizational constructs. And the People, Ideas & Objects software development capability provides the organizational flexibility that the producer will soon demand as necessary.

It is inherent in the Draft Specification that the market take a larger role in the science and innovation of the industry. The question is therefore asked, is the Draft Specification correct in it's assumption that research and innovation can be conducted within "markets" as opposed to in "firms"?

I argue that science‐based businesses face unique challenges as they straddle two worlds with very different time horizons, risks, expectations, and norms. Whereas once these challenges were managed inside the boundaries of corporate R&D labs—under the auspices of Chandler’s visible hand—today the invisible hand of markets increasingly governs them. An assessment of this form of governance against the requirements of science‐based businesses suggests a gap and a need for organizational innovation. The essay concludes with a discussion of what Chandler can teach us about science‐based business, and the organizational and institutional implications of science‐based business. p. 4

Elements of scientific risk are everywhere in the oil and gas industry. Outcomes are not necessarily predictable, and the lead times from idea to commercial success is substantial. The oil and gas industry qualifies as a science based business in Professor Pisano's strict interpretation.

In this paper Professor Pisano speaks about the different business models of how these science based businesses fund their research. Noting that the IBM, AT&T, 3M and Xerox research parks are reflective of an older era. If we accept Exxon's estimate that $20 trillion over 20 years is the required capital expenditure. We can ask is this demand for capital beyond the "normal" allocation mechanisms available in the marketplace? Are the capital and debt markets sophisticated enough to be able to determine which producers will be the winners and losers? I have argued throughout the Preliminary Research Report and this blog that the innovative producer will have the price mechanism reward innovative and scientific success.

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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19, 20, 21...

Adding to the long list of compelling reasons that Directors, Shareholders and Investors should support these software developments. We add three more to total 21 compelling reasons.

We stand on the shoulders of several generations of giants.

As much criticism that we toss toward the bureaucracy, we must be careful to understand that the level of specialization and division of labor that is employed is significant. That to tear things down in a reckless manner would be irresponsible, and doesn't recognize the speed and altitude that our advanced societies and organizations are traveling at.

We also need to recognize that the bureaucracy can fail on their own. The need to have the alternative software and organizational constructs in place before they're necessary is something that we should be concerned about. Drawing an analogy to the banking industry, we can see that failure has its consequences.

Tacit knowledge drives software definition.

Tacit knowledge can not be captured in software. Tacit knowledge is how things are accomplished in oil and gas. And most importantly, how things are accomplished successfully. People, Ideas & Objects software development capability will provide users with the ability to develop the tools to use their tacit knowledge.

In an industry that is based on the earth sciences and engineering disciplines. Where each barrel of oil escalates the demands for ever more knowledge. The more effective deployment of human resources is challenged by these demands for more knowledge. Continuing to build individual scientific capabilities into each oil and gas company. To attain capabilities that are just-in-time for any anomaly, will bring about failure. Whereas through the Joint Operating Committee and the Draft Specification individual silo's are replaced by an overall industry capability that is pooled in each Joint Operating Committee.

The effective management of human resources in this fashion is inherent in the People, Ideas & Objects software application modules. Enabling the users of this software to build the tools to exercise their tacit knowledge is a necessary element of the future needs of the industry.

Enhanced Ownership Compliance & Governance.

This compelling reason consolidates the logic discussed in a number of recent blog posts. Our discussion of the role of government in funding the software development costs of their compliance requirements, particularly royalty compliance. Issuing legislation, regulations and assuming compliance does not consider the enhanced role of software in today's society. Professor Perez has challenged us to re-think the role of government. Government's direct involvement in developing the software for industry compliance is an area that we will continue to push for.

The directors, shareholders and investors want compliance to all governing legislation and regulations. These compliance requirements will be built-in with the transaction processing being built in People, Ideas & Objects Draft Specification. Compliance is a fall out of the transactions and actions being taken by the firms and their agents. Compliance should never be a driving criteria in decisions. One of the key value added processes in the Draft Specification is the Accounting Voucher Modules process for designing transactions.

With recent and prospective changes in the corporate board room. The role of directors, shareholders and investors is enhanced. Their direct involvement with the producers ERP system provider [or more specifically People, Ideas & Objects] enhances and enables greater compliance and governance for the owners and their direct representatives.

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on these 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

If your an enlightened producer, an oil and gas director, 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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