Lazonick on Chandler Part III

In the first post on Professor Lazonick's paper we discussed the differences between optimization and innovation in terms of corporate culture. How in oil and gas we need to move from optimization to an innovation footing. To do so requires a substantial investment for the oil and gas producers. An investment that begins with the development of the software defined in the vision of the Draft Specification. An investment that up until today, the oil and gas industry has been unwilling to make. What I think Lazonick makes clear in this second part of our review of this paper is that the means to which to make the changes are within our grasp. All that is missing is the willingness to make the necessary investments. That willingness is a product of the innovative firms corporate culture.

2. The theory of innovative enterprise cont

Professor Lazonick begins with a comparison between what he calls the neoclassical firm and the innovative enterprise. The role of the entrepreneur and the assumptions supporting each. In oil and gas I see the bureaucracy believing theirs is a management discipline that deals with all aspects of the industry. That their management capabilities are the critical resource to the profitability of the industry.Lazonick notes;

There are two assumptions of the neoclassical theory of the firm that limit its ability to understand innovative enterprise. First, the neoclassical theory assumes that the entrepreneur plays no role in creating the disequilibrium condition that triggers the reallocation of resources from one industry to another. In the theory of the innovating firm, by contrast, entrepreneurs create new profitable opportunities, and thereby disrupt equilibrium conditions. Second, the neoclassical theory assumes that the entrepreneur requires no special expertise to compete in one industry rather than another. All that is required of the entrepreneur is that he follows the principle of profit maximization in the choice of industry in which to compete. In the theory of the innovating firm, in contrast, the entrepreneur’s specialized knowledge of the industry in which he chooses to compete is of utmost importance for his firm’s ability to be innovative in that industry. p. 6

My experience in dealing with management of the oil and gas industry is accurately captured in Lazonicks text. What management has learned is they too can control the disruptive nature of the entrepreneur, by not allocating any resources towards it, and hence avoid the disequilibrium that is created. Or so they believe. This behaviour has become systemic and has the companies actively avoiding the necessary investments in the business of the oil and gas business. Optimization is the word that everyone marches to and any producer that makes the necessary investments ininnovativeness is deemed risky.

The limiting assumption here is that the entrepreneur does not choose the firm’s level of fixed costs and the particular productive capabilities embodied in them as part of his firm’s investment strategy. In the theory of the innovating firm, the level of fixed costs manifests strategic decisions to make investments that are intended to endow the firm with distinctive productive capabilities compared with its competitors in the industry. p. 7

I referenced this article from the Calgary Herald the other day. It suggests the National Energy Board has determined that Alberta Natural Gas production will decline to 8.5BCF / day in 2012 from 12.7 today. Are we as an industry unaware of the consequences of inaction in the investments necessary for innovation? AsLazonick notes the costs of optimization eventually turn to eliminate the profit elements. The oil and gas industry in Alberta is experiencing these increased costs, of which they attribute to greedy suppliers, and the declining production values. Why, in discussing this with Canadian management, it clearly is not their fault. Imputing they are only a small part of the market.Lazonick discusses this U-shaped cost curve of the optimizers.

The assumption is that the addition of variable factors of production to the firm’s fixed factors of production results in a declining average productivity of these combined factors (i.e., the firm’s technology, which is also the industry’s technology). In deriving the U-shaped cost curve, neoclassical theorists give two quite plausible reasons why productivity declines as output expands. Both reasons assume that the key variable factor is labor. One reason is that as more variable factors are added to the fixed factors, increasingly crowded factory conditions reduce the productivity of each variable factor as, for example, workers continuously bump into one other. The other reason is that as more workers are added to the production process, the entrepreneur, as the fixed factor whose role it is to organize productive activities, experiences a “control loss” because of the increasing number of workers that he has to supervise and monitor. p. 7

It is reasonable to assume that by 2012 the Canadian producers lack of investment in innovation, and the increased costs associated with the U-shaped nature of the optimizers fixed and variable costs, will eliminate them from the marketplace. As I have indicated here on this blog before, Canada, and that is all of Canada, represents a negligible 2 percent of the readership of this blog. I can say with almost 100% assurance, when the scope of the Preliminary Specification is determined by the users, that Canada will not be represented in the functionality of the People, Ideas & Objects application. Conversely, the U.S. makes up 88% of the total users represented here. Anyone want to guess where the innovative, or profitable, elements of the oil and gas industry will be located?

Hence organization—in this case the relation between the entrepreneur as manager and the work force that he employs—becomes central to the neoclassical theory of the firm. Within the theory of the optimizing firm, the constraining assumption is that the entrepreneur passively accepts this condition of increasing costs, and optimizes subject to it as a constraint. In sharp contrast, in the theory of the innovating firm, the experience of increasing costs, as shown on the left-hand side of Figure 2, provides the firm’s strategic decision-makers with an understanding of the limits of the initial investment strategy, and with that information they make additional new investments for the strategic purpose of taking control of the variable factor that was the source of increasing costs [for an elaboration of this argument, seeLazonick (1991: ch. 3, 1993)]. An innovating firm would not take a condition of overcrowding or control loss that results in increasing costs as a “given constraint,” but rather would make investments in organization and technology to change that condition. In effect, for the sake of improving its capability to develop and utilize productive resources, the innovating firm makes strategic investments that transform variable costs into fixed costs, which the firm, in order to innovate successfully, must now endeavor to transform into low unit costs. pp. 7 - 8

Therefore investment in the productive capacity of the oil and gas industry starts here. Development of the innovative organization is deemed a necessity due to the demands of the marketplace and the increased complexity in the underlying earth science and engineering disciplines. Today we live in a sophisticated marketplace that demands the changes to organizational structure be contemplated and built within the software first. This is only the beginning of the investments that are necessary. These investments are a significant undertaking for the industry, and they are past due.

An innovative investment strategy is inherently uncertain, and investments in innovation must be made despite the existence of uncertainties concerning prospective returns. Any strategic manager who allocates resources to an innovative strategy faces three types of uncertainty: technological, market, and competitive. Technological uncertainty exists because the firm may be incapable of developing the higher quality processes and products envisaged in its innovative investment strategy; if one already knew how to generate a new product or process at the outset of the investment, it would not be innovation. p. 9

In Part III of this paper we will begin to look at the risks associated with an innovative strategy. Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially 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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Oracle - Stack Application Integration Architecture

We continue along with our review of Oracle Corporation product offerings in order to revise the Draft Specification. It is clear that the addition of Oracle products brings a level of capability to People, Ideas & Objects that is impressive. This is our second post on this topic, with our review being aggregated under the Oracle-Stack label on this blog. When we are complete, in terms of defining the Oracle Products that will be part of People, Ideas & Objects offerings, I will update the Draft Specification to include the changes. So far this has been a fairly easy process with the wholesale adoption of the Database and Middleware stacks of Oracle products. Today we move into the Application section of their product offerings. Specifically we look at their Application Integration Architecture (AIA).

One of the areas that Oracle has been busy with in the past decade is in the area of acquisitions. Might be the understatement of this century. They now own a substantial portion of the ERP and CRM business environments and are in possession of many of the top applications. PeopleSoft, BEA, Siebel, J.D. Edwards and Sun are just a few of the many acquisitions that they have made. These acquisitions have come with a substantial number of customers, particularly when you consider they also owned their own ERP systems in Oracle Financials. To get ahead of the competition they realized they needed to build a new generation of applications for their customers. Oracle Fusion Applications is that architecture and Oracle Application Integration Architecture is how those customers on PeopleSoft, Oracle Financials, Siebel, J.D. Edwards, SAP and others are going to move to Oracle Fusion Applications.

From People, Ideas & Objects point of view, we see that there are a number of systems that are used in the oil and gas marketplace. We are also like Oracle in that we are developers of custom applications based on the vision of the Draft Specification and the reality of Oracle Fusion Applications. The more I read about the Oracle product stack, the more I feel this is the correct direction to move. Oracle Fusion Applications appear to be bringing to market a different concept of what ERP systems are comprised of. Application names that end in "Hub" and "Engine" are exactly what we need to build Partnership Accounting, Accounting Voucher and other modules.

As has been indicated in many previous posts. The Community of Independent Service Providers are a key element of how the user community and People, Ideas & Objects developers interact. One of the key areas that we will be looking to the CISP for is the accounting systems integration. By using Oracle Application Integration Architecture tools they could move a producer from their current system, whether that is SAP, Oracle Financials, Qbyte or others to People, Ideas & Objects much quicker, with less cost and difficulty by predefining and pre-programming much of the interfaces across the disparate systems. With Oracle's stated objective of eventually moving all of their customers to Oracle Fusion Applications, making the integration from those applications as seamless as possible, is only common sense. What is different this time is the scale at which Oracle has approached the transition and that is reflected in the Application Integration Architecture offering. People, Ideas & Objects has access to these tools and a community of service providers, the CISP, to make these transitions as painless as possible.

Two resources are the most appropriate to review to get a handle on this unique and exciting tool set. Listen to a two part interview of Oracle Vice President Jose Lazarus, here and here, talking on AIA and the "Evolutionary Path to Fusion" white-paper. Some of the key thoughts behind the product are noted below.

• Supports transactions across multiple systems.
• Delivers integrated business process.
• Pre-built integration.
• Part of Fusion Applications.

Jose Lazuras talks about the Oracle product strategy for AIA. Their core strategy is to simply limit costs and risks of integrating multiple applications. In February of 2008 they expanded on this product strategy by introducing their "Foundation Pack" which is a programming module for integration purposes. If I didn't already have a job at People, Ideas & Objects I would certainly look into joining as a member of the CISP working on producer integrations. 

Lastly one can define what a product is by also defining what it is not. With our review of Oracle products it is determined that the People, Ideas & Objects application will be based on Oracle Fusion Applications (more on this in the next post on the Oracle-Stack) and therefore, will not be built on the following Oracle products.

• Oracle E-Business Suite
• PeopleSoft Enterprise
• Siebel
• J.D. Edwards Enterprise One
• J.D. Edwards World
• Agile
• AutoVue

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially 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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Lazonick on Chandler Part I

I introduced Professor Lazonick's paper the other day, it can be downloaded from here. I will be reviewing this paper in multiple posts. Professor Lazonick is from the University of Massachusetts at Lowell and based on a review of the bibliography for this paper, has been writing on the topic of innovation for over two decades. This is the first that I am aware of Professor Lazonick's writings, and we will definitely have to take a look at some of his other papers.

Lazonick starts off with an appropriate reference to Joseph Schumpeter about the importance of innovation.

More specifically, since, as Joseph Schumpeter (1934, 1950) recognized, innovation drives economic development. p. 1

Economic development from the point of view of greater productive capacity to produce oil and gas. How does the oil and gas industry produce more with the same volume of inputs? This is highly dependent on innovation and the capability to innovate that the industry develops. Lazonick notes Chandler;

Chandler (1990: 594) then goes on to articulate in two paragraphs, which I quote in full, what I consider to be the essence of his theory of innovative enterprise, including its contribution to the growth of the economy as a whole, that he had distilled from his trilogy. p. 2

Such organizational capabilities, of course, had to be created, and once established maintained. Their maintenance was as great a challenge as their creation, for facilities depreciate and skills atrophy. Moreover, changing technologies and markets constantly make both existing facilities and skills obsolete. One of the most critical tasks of top management has always been to maintain these capabilities and to integrate these facilities and skills into a unified organization—so that the whole becomes more than the sum of its parts. p. 3

Such organizational capabilities, in turn, have provided the source—the dynamic—for the continuing growth of the enterprise. They have made possible the earnings that supplied much of the funding for such growth. Even more important, they provided the specialized facilities and skills that gave the enterprise an advantage in foreign markets and in related industries. Because of these capabilities the basic goal of the modern industrial enterprise became long-term profits based on long-term growth—growth that increased the productivity, and so the competitive power, that drive the expansion of industrial capitalism. p. 3

2. The theory of innovative enterprise

The Preliminary Research Report, the Draft Specification and all of the work done at People, Ideas & Objects points directly at the Joint Operating Committee (JOC). The reason for this is that People, Ideas & Objects have determined that the JOC is the ideal organizational construct of the innovative energy producer. Lazonick summarizes why an organization like the JOC is that innovative construct for oil and gas, better then I have seen elsewhere.

A business enterprise seeks to transform productive resources into goods and services that can be sold to generate revenues. A theory of the firm, therefore, must, at a minimum, provide explanations for how this productive transformation occurs and how revenues are obtained. These explanations must focus on three generic activities in which the business enterprise engages: strategy, organization, and finance. Strategy allocates resources to investments in developing human and physical capabilities that, it is hoped, will enable the firm to compete for chosen product markets. Organization transforms technologies and accesses markets, and thereby develops and utilizes the value-creating capabilities of these resources to generate products that buyers want at prices that they are willing to pay. Finance sustains the process of developing technologies and accessing markets from the time at which investments in productive resources are made to the time at which financial returns are generated through the sale of products. p. 4

Chandler noted that "strategy follows structure". One of the key attributes of using the JOC is that it enables the strategy to be unique and specific to the property represented. In order for the value to be earned, each facility, each zone of oil and gas requires that a different strategy be implemented. One that is unique and develops the value based on the facts and the situation at the property.

With the structured hierarchy, and its close cousin the bureaucracy, the focus is on the corporate entity. This is reasonable until we discover the conflict associated with many corporate entities represented in each JOC. To eliminate the conflict at the JOC it is important to remember that consensus at the JOC is driven by financial interests. If the strategy and structure are both focused on the same organization, this conflict between corporate entities disappears.

The last attribute is equally important. To establish finance at the JOC does not seem to be an issue until it is realized the oil and gas finance mechanisms are focused on the corporate entity. The Financial Marketplace module of the Draft Specification moves the finance function from the corporate entity to the JOC. This enables proper matching of investments and returns based on the strategy and organizational alignment noted.

As this discussion of strategy, organization and finance show, the culture of the oil and gas industry is based on the Joint Operating Committee. The closer we move to that conceptual model, the greater the alignment, efficiencies and other attributes become. In addition to the focus on the culture of the JOC, there needs to be a revision in another attribute of culture of the energy industry. The culture that we want to change is what Lazonick and Chandler call the optimization culture, and is applied to the oil and gas industry in this post. 

I see the two cultures as being mutually exclusive. One, the JOC, being developed to deal with the unique requirements of the partnerships represented in oil and gas. And the optimization culture exists as a result of the "easy" energy era that existed in the 1980's and 1990's. There was a demand to survive commercially during this "easy" energy era. Innovation was the last thing that people thought of. Optimization for the survival of the firm was the skill that was rewarded. Lazonick notes;

The problem is, however, that the optimizing firm is not an innovating firm; indeed it can be characterized as an un-innovating firm. p. 5

How do we change from an optimizing to an innovative culture? What we do know is that software defines and supports the organization. Therefore to change the organization requires that we build the software first, and that is what we are doing at People, Ideas & Objects. Review of the remainder of Lazonicks paper will provide more answers, and I think that Lazonick and I are not talking about a wholesale change from optimizing to innovating. I would rephrase it for the purposes of the communities represented by People, Ideas & Objects as from where we are today; innovating on top of optimization, to change it to a culture of optimizing on top of innovations.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially 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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Focused on the Value

Number eight of eight in our "Focused on" series looks at the value proposition of People, Ideas & Objects. Noting how the costs of ERP systems have escalated. Where the business models in which they are sold provides People, Ideas & Objects with the opportunity to provide substantial competitive advantages.

The People, Ideas & Objects Value Proposition

Big ERP application costs have soared in the past few decades. Based on selling a generic solution to each producer, the business of selling big iron applications have been lucrative for the chosen few vendors. On the other hand producers are frustrated by the extensive one-off costs associated with customizing, supporting and operating these applications within their firms.

What if the software development costs associated with customization were aggregated for their use over the entire industry. People might argue that a producers competitive advantages would be diminished by everyone having access to the same software. I argue that the innovative oil and gas producers competitive advantages are based on their earth science and engineering capabilities applied to their asset base. Each producer holds a unique and mutually exclusive asset base to all other producers. As a result of this argument, the costs of custom development, although large in terms of aggregate, are infinitesimal in terms of a specific producers production base. This is the future of software and the value that People, Ideas & Objects is designed to provide.

In the marketplace today support costs are substantial as each producer must attain a capability to deal with any and all contingencies. Does the quality of a Java programmer have a direct impact on a producers reserves or production profile? Of course not, then why does the innovative oil and gas producer need to employ the Java programmer directly?

People, Ideas & Objects offers a compelling and competitive value proposition. Our funding is based on the software development and cloud computing costs, plus an element of profit for People, Ideas & Objects. A fundamentally different business model to the big iron ERP vendors. A business model that deals with the two critical conflicts in software, those conflicts being the source code and the software developers customers. Traditionally as more customers use the software, the costs to change the software code become progressively larger, and the costs to deploy the changes more difficult. People, Ideas & Objects eliminates these two conflicts by providing a software development capability and service based on cloud computing. If users determine that an application function is redundant and should be replaced, they won't get an argument from us.

As a result of the Information & Communication Technology Revolution (ICTR), software defines and supports organizations. It can be the glue that holds things together, it can be the cement that stops any change or innovation, and it can be the tools oil and gas investors need to develop their own organizational definitions. An organizational definition that provides enhanced ownership control, compliance and governance over the current bureaucracies methods. A software development capability as defined by People, Ideas & Objects is a necessity to operate in the dynamic and innovative oil and gas industry.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially 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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Focused on the Proof

Number seven of eight in our "Focused on" series looks at the academic proof supporting the transition to People, Ideas & Objects. How the academic community in general, and the key leadership within that community specifically, are actively promoting similar concepts.

The Proof

To summarize and provide proof that the academic community is squarely of similar mindset we need to only highlight the "Chandlerian Perspective". Consisting of the following three simple facts.

1. Technical innovation & Organizational Innovation are interdependent.
2. New Forms of Business organization & institutional arrangements are invented to solve specific economic problems.
3. Organizational & Institutional innovation is an evolutionary process - nothing guarantees "We get it right every time."

To consolidate all of the excellent research that we have reviewed on this blog would be impossible. In addition to our current review of Alfred D. Chandler, we have reviewed the works of (in order of importance to the work of People, Ideas & Objects). Professor's Carlota Perez, Richard N. Lanlgois, Carliss Baldwin, Giovanni Dosi, Oliver Williamson and many others. [Williamson winning last years Nobel prize in economics for Transaction Cost Economics.] All of these authors are focused on the impact of technology and organizational change.

Much of this academic review has been applied to the development of the Draft Specification. The Draft Specification provides a sound vision of how the problems facing the industry are resolved by using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. This vision sets out to define the boundaries of the firm and markets, how transactions are designed, how modularity in the specification creates a more specific division of labor and how these attributes affect science-based businesses.

One of the key break-through's of the Draft Specification is the use of marketplace's in the modular specification. There are three marketplaces, Resource, Financial and Petroleum Lease, in the specification. Importantly we have learned from Professor Ronald Coase that markets are created. This is a further extension of what we learned in the Preliminary Research Report     that software defines and supports organizations. As a further development in this area, we recently learned of a concept put forward by Professor Carliss Baldwin of "Actionable Transparency". Instead of confusing the reader I will leave it to their desire to further review the concept by selecting this label.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially 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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Focused on the Risk

A quick posting today. Number six of our "Focused on" series.

The Risk

The risk is that if we don't act in a timely fashion, the global productive capacity of the oil and gas industry could decline. We are already at a stagnant level since 2005, to decline would be a serious issue that seems so unnecessary. Exxon has stated that $20 trillion in capital is needed over the next 20 years to meet the market demand for oil and gas. I think we should organize ourselves first, otherwise we risk wasting time and money. Organizing ourselves around the Joint Operating Committee, the legal, financial, cultural, communication and operational decision making framework of the global oil and gas industry.

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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Focused on the Opportunity

During our first quarter budget drive, we documented 30 compelling reasons for industry to financially support People, Ideas & Objects software developments. These 30 compelling reasons are now codified into eight "Focused on" entries explaining our priorities and values. This is the fifth entry in this series and attempts to codify the opportunity that the Information Technology & Communication Revolution provides. Particularly through the lens that Professor Carlota Perez provides.

The Opportunity

There's more at play in terms of business opportunities then the insatiable demand for energy and high(er) energy prices. As energy producers see the long term prospects for oil and gas being quite lucrative. We also find ourselves at a period of time in which the economy is restructuring around the Information & Communication Technology Revolution (ICTR). Since 2005 we have closely followed the writings and ideas of Professor Carlota Perez. A summary of her work would show that now is the opportunity that provides for a revolutionary restructuring of all industries based on ICTR.

So if you are an earth science or engineer in oil and gas, or, in the business, economics and administration of oil and gas there are substantial opportunities for people to establish not only a career, but also a service offering based on defining and supporting the People, Ideas & Objects software developments. It is my opinion that people should view this opportunity as a complete and new beginning of oil and gas. One in which everything has to be invented and developed.

Highlighting the key points of Professor Perez' work is best left to a review of this blog's archives and her papers. (Note: Professor Perez has a new paper published that I will be reviewing soon. It can be downloaded from here.)This is the fiftieth article of ours on her work. Perez' research makes up a substantial body of work that provides real value for people who want to take advantage of these once in a lifetime opportunities. Posts highlighting her work can be aggregated under the Perez label.

Two areas that we have not covered in enough detail are the effect of the .com meltdown and the general maturation of the underlying Information Technologies. As Professor Perez states, revolutionary technologies are introduced through two phases, Installation and Deployment. Between these two phases is a period she calls the "Turning", in which the ICTR begins to lift all boats. The "Turning" was the .com meltdown. Reality is that now is the beginning of a potentially thirty year Deployment phase where Information Technology will remake all industries, and particularly oil and gas.

To the second point of the maturation of the underlying technologies. Everything from a technological point of view is in place to drive innovation. Companies like Oracle and Apple are not innovating off new architectures or technologies. They are combining the existing infrastructure in new and innovative ways that bring value to consumers and businesses. People, Ideas & Objects use of the Joint Operating Committee to identify and support the innovative oil and gas producer is the same thing. Providing architecture and technology to drive innovation.

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 points of interest.

I want to highlight two different issues or articles of interest today. The first is a video by Professor Simon Johnson of MIT making a presentation on his new book 13 Bankers. Although not directly on topic, the video provides a different perspective on the financial crisis, which has morphed itself into what is now called the debt crisis. A debt crisis that the oil and gas producers can ill afford. Professor Johnson's video makes the presentation of his issue, and it will be interesting to see how his ideas develop.



The second point of interest is a spectacular paper that I am reviewing. The paper is one of the many from the April issue of the Journal on Industrial and Corporate Change. The specific paper is written by Professor William Lazonick and is entitled "The Chandlerian corporation and the theory of innovative enterprise." The final paragraph of the document reads.

In the 2000s, it can fairly be said that the Chandlerian corporation has ceased to exist. In historical retrospect, Alfred Chandler uncovered the dynamics of a historically-specific business model that drove the development of the world’s richest economy. The essence of capitalism is, however, as Schumpeter recognized, change. The work of Chandler has provided us with a deep understanding of the foundations of US economic power in the middle decades of the last century. His work does not provide us with a roadmap for understanding the business models that have become dominant in the first decades of the 21st century. There is a need for us, who seek to build on the Chandlerian legacy, to remain committed to the integration of theory and history. My claim is that, with its focus on strategic control, organizational integration, and financial commitment, “the theory of innovative enterprise” is a potent framework for analyzing the process of change. It is a framework that, through the integration of theory and history, can enable us to “catch up with history” so that we can analyze the present as an evolving reality before the present as history passes us by.

I will be writing my review of this document in multiple parts. I am also extensively quoting the text and as such it is making for a long series of posts. In the back of my mind I think these posts would be substantially more valuable to the readers if they were to read the paper first and then review the application of Lazonick's paper to People, Ideas & Objects. So with that thought the paper can be downloaded from here.

The many points that Professor Lazonick is making are directly applicable to the oil and gas industry. Over a period of time, during the low energy prices era, the demands of the business  required optimization in order to survive. However, in the past 10 years the marketplace has changed to this new energy era we find ourselves in today. An era where demand is insatiable and supplies are constrained. Creating the higher commodity prices that re-allocate the financial resources towards the innovative oil and gas producer. The marketplace has shifted, however, the energy industry remains constrained in an optimizing mentality that is inconsistent with its needs.

The shift from optimization to an innovative footing is counter cultural. We can't get to the innovative footing the energy industry needs without Schumpeter's creative destruction being put into full force. What is also clear is that the move to an innovative footing is a substantial capital investment. Starting off with the development of People, Ideas & Objects and continuing on within each producer firm developing their own scientific capabilities. The current management are locked in the optimization mindset, and are conflicted by their reported earnings from higher commodity prices. They have poorly prepared us for the need to change, and have betrayed our interests in this constant pursuit of optimization. A constant pursuit of optimization that Lazonick shows leads to the destruction elements of Schumpeter's creative destruction.

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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Oracle Stack - Database and Middleware

With this post I will start to detail the various Oracle components that we will use in developing and delivering People, Ideas & Objects Draft and other Specifications. These posts will be aggregated under the "Oracle-Stack" label for future reference. I will also refresh the Draft Specification with the greater detail and information provided in these posts. Today, I want to do the easy lifting and talk about the Oracle Database and Middleware products.

What can't be said about the Oracle Database. It is remarkable that the value of Oracle is the vision that Larry Ellison continues to see for this product. Ellison is to databases what Steve Jobs is to the consumer. As it stands, the Oracle Database feature set is light years ahead of the IBM DB2 product offering. I don't know what IBM has been up to, although it doesn't appear to be too much based on the changes to DB2.

One of the key attributes of People, Ideas & Objects use of the Oracle Database is that the database rules. These object-relational mapping strategies frighten me. I started developing to the Oracle Database in 1993 and was quickly indoctrinated to relational theory. Nothing in the object-relational world provides a stronger argument then Oracle's implementation of relational theory.

That being stated we have to live in the real world, and accept that our world includes Java. So the architecture will follow along these lines. The database rules. That is to say all data operations that create, update or delete data are done by the database, based on database related logic. Application logic will be handled by Java and it will have the object-relational mapping between it and the database provided by Oracle's Toplink. This will provide the database integrity that will be necessary for the application to operate as it is required. So in summary, the application model, when creating, updating or deleting data will defer to the relational database for its operations.

Review of "Oracle's Database" layer of applications and frameworks introduces us to clustering, warehousing, security, compression, caching, search and other services. These will all be deployed as we are working within the cloud computing paradigm. The Security & Access Control module of the People, Ideas & Objects application will incorporate 100% of the Oracle Security, Oracle Identity, access control and our Military Command & Control Metaphor. This concludes the discussion on the Database layer and now we move to the middleware.

The same discussion noted above about the database ruling the applications logic when it comes to insert, update or delete operations applies in the middleware layer of the Oracle product offerings. What's important to note is that Oracle had me at "Fusion". This is an unbelievable grouping of applications that are designed to enable the cloud computing paradigm. Controlling all the elements of the technology stack, from silicon, Java, Solaris etc, which makes the paradigm a reality. My favorite product in this layer is the Oracle Coherence offering.

Of note we will also be moving from the GlassFish application server to Oracle's offering. This provides us with a substantial boost in terms of the performance of the servers. GlassFish remains the reference implementation, but Oracle has such strength in this area, that they have placed GlassFish one tier down from their Oracle WebLogic Server Enterprise Edition product. To repeat we will be using Oracle WebLogic Server Enterprise Edition.

This covers off the two bottom layers of the Oracle product offering. As you can see it was the easy lifting due to the fact that we have adopted both layers wholesale. Addition of the Military Command & Control Metaphor will be no easier, nor more difficult as a result of these changes.

Next up will be discussion of the Applications layer of Oracle products. The next post will be on the Application Integration Architecture, specifically. Much of the thinking that went into the development of the Draft Specification has similarly been adopted by Oracle. That is to say their design and ours really resonate.

One thing that we haven't discussed is the cost associated to moving to these products. My attitude is who cares. With the oil and gas industry being a primary industry generating $3.8 trillion per year, the associated costs of Oracle licenses will be far below one one-hundredth of 1%. ($381 million) or there about's.

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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Focused on the Product

Continuing on with our review of the eight focus areas of this project. Today I want to highlight the key benefits around the actual software application. These focus areas are compiled from our first quarter's, 30 compelling reasons that People, Ideas & Objects should be funded and developed.

The Product

People, Ideas & Objects is a customer of Oracle Corporations products. With the acquisition of Sun Microsystems, Oracle now provides the hardware and software that we will use in building and providing our software solution to the oil and gas marketplace. In the past number of years Oracle has spent greater then $39 billion in research and acquisitions to make their products the best in the marketplace. With the closing of the Sun Microsystems acquisition, Oracle's offering is now in place and will be used to develop the People, Ideas & Objects application modules and deliver the solution in the cloud computing paradigm.

Today there is also a revolution in terms of the performance of software developers. Agile / Scrum / Lean based software development methodologies are enhancing team performance by metrics of 500 to 1,000 percent. Impressive yes, but more importantly they are eliminating the issues of waste in terms of the excessive cost, chronic lateness and off specification types of issues that have plagued software development for decades. This isn't the end of the problems in software development, just the first of many steps in making the customer focus the primary concern.

One of the many things that we have learned in this blog, and seem to be discovering from many different perspectives. Is that tacit knowledge, the collective understanding held by the users in the oil and gas industry, drives software definition. To preclude the user from the developments would preclude success, literally. Tacit knowledge can't be captured. The user has to have the tools developed to enable them to use their tacit knowledge in the most effective manner. That is the product focus of People, Ideas & Objects.

People, Ideas & Objects, although not a "pure" Open Source project provides the innovative oil and gas producer with open access to the software code that makes up the application. This provides the producer with access to the software code to ensure the application is performing as it should. I foresee the energy industry hiring a member of the CISP to verify the software code for audit and other purposes. This "openness" ensures that the use of the software is consistent with the needs of the innovative oil and gas producer.

Normally I would include the Costs associated with this development as part of the Product Focus. Although our total costs are high, early projections for development of the Draft Specification are in the range of $800 to $1 billion. These costs are allocated based on a low dollar per barrel of oil equivalent per year basis. (Just $1.00 per boe / year for 2010, potentially generating $10 million in the U.S. alone.) Making subscribing producers total ERP costs a small percentage of what those firms pay today. Importantly, as we are learning in our review of Alfred D. Chandler, "Strategy follows Structure". By using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. People, Ideas & Objects enable the producer to focus on their key competitive advantages, the development and application of their earth science and engineering capabilities to their asset base.

Lastly I want to point out that the Apple iPad was released this past weekend. I think the product is a major turning point in the use of technology in business. Chaining one's self down to a desk became all the more ridiculous as a result of Apple's iPad. The ability to conduct your business anywhere and at anytime is now very real. Those producers who subscribe to People, Ideas & Objects will have direct benefit of products such as this. I recently noted some of the innovative ways that we intend to develop to these types of platforms, and have already documented some of the advantages of working with that platform.

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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