Start Date

It might be reasonable to establish a start date in which we could look forward to beginning the next step in our developments. That being the development of the Preliminary Specification. Therefore, you should mark your calendars for January 1, 2011. That is when the development of the Preliminary Specification will begin. People who are interested in becoming members of the Community of Independent Service Providers (CISP), and participate directly in the Preliminary Specification, should begin the development of your proposal as soon as possible. We will begin accepting applications August 31, 2010.  


It would be ideal to have as many people as possible involved in the development of the Preliminary Specification. Therefore, special emphasis should be placed on the marketing aspects of your proposal, as all the other CISP members, users and producers will be able to view the wiki, where they are stored with the specifications deliverables, starting January 31, 2011. Users and producers would then be able to contact CISP members to have their ideas, participation and needs defined through the CISP membership.


Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As has been proven, this reorganization could achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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Phase Two

It has been an interesting June so far. What I see happening in the marketplace is quite remarkable. Discussion of the financial difficulties that oil and gas producers are having can be cited daily. Margins are thin, and in some instances, negative. Reserves and production profiles are in decline, while capital expenditures are ever increasing. The basis of this project has always been the volumes of earth science and engineering effort in each barrel of oil equivalent has and will continue to increase. To approach this issue, producers need to reorganize the fixed volume of human resources in order to achieve greater output and capabilities. Organize around the Joint Operating Committee as suggested in People, Ideas & Objects Draft Specification. The time for this project to be fully funded and begin developing the Draft Specification is near at hand. This is why we now need to shift to phase two of this project.


Phase one has been the research and development of the Draft Specification and associated attributes. In the first half of 2010 we have been fortunate to be able to conduct a fairly comprehensive review of the research that went into the Draft Specification. This review for all intents and purposes has ended. Academically proving the basis of the Draft Specification was valuable, now we need to shift gears and get on with the business of People, Ideas & Objects.


After a two week hiatus, I have posted a number of entries that intimate some of the changes that need to be made. This is the beginning of the “commercialization” of the Intellectual Property (IP) contained within this project. Although I am hesitant to prepare a budget and plan for how this project proceeds, these may be possible in the fourth quarter of 2010. The majority of the material being developed for that budget and plan generated from the entries that are written here in the next few months.


What is necessary now is for the producers to begin actively supporting this project. To sit back and wait until someone delivers a software application that meets your needs will be a long and lonely waste of time. To suggest that you can have systems that meet your needs without your direct involvement is foolish. The industry has to financially commit and actively participate in the communities that are an inherent part of these developments.


I don’t expect this transition from Phase one to two will necessarily be easy. It would be of great assistance if those that read this blog were to begin their own action plans. Plans on how they could participate and encourage the firm they work for to join in these developments. One of the difficult aspects of this second phase is the scope of the effort is very large. Not much will happen unless everyone gets involved.


Society is put in peril when world oil production declines. There is evidence that the worlds oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As has been proven, this reorganization could achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so require the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.


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Approaching regulatory issues

Many of the ways that problems are solved in the Draft Specification might lead to issues with the current regulatory frameworks. This should be expected. We are building a system that is designed and intended for the 21st century. Retrofitting 20th century regulatory frameworks into these systems is going to create some friction. Where conflict and contradiction exist, creative and innovative solutions can begin.

We have a variety of ways to deal with these issues, if and when they arise. We can take the literal interpretation and implement the compliance feature in much the same way they would be implemented today. We can design new and innovative ways in which compliance can be achieved and alternatively we can influence and change the compliance framework itself.

Of these three different approaches we should aspire to attain better compliance and governance of the producer and market firms. This clean slate approach is one of the advantages that we acquire, we should optimize it. Sounds like a job for the Community of Independent Service Providers.

Society is put in peril when world oil production declines. There is evidence that the worlds oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As has been proven, this reorganization could achieve far greater oil and gas production. Management of the industry are conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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We are an Oracle Customer

Cloud computing is a paradigm shift. The consequences of moving to that new platform are substantial for all concerned. As software developers, we are not immune to these changes. Viewing cloud computing, as developers, from the same perspective as that used in the past would eliminate many of the benefits of this new dynamic. This post seeks to highlight how People, Ideas & Objects, as cloud computing software providers to the oil and gas industry, approach the use of Oracle technologies and services.

The overall strategy that I have used with respect to Oracle is that we are perceived as a customer. In today's environment, Oracle's business is based on selling technology directly to the oil and gas firms. People, Ideas & Objects now represents the oil and gas firms interest by providing the cloud computing services, and therefore we are Oracle's customer.

Usually, as developers, we would be classified within Oracle's developer network. Providing People, Ideas & Objects with a discount on all of their products. As a result of being a "customer" as opposed to the traditional "developer", People, Ideas & Objects will have to pay the full list price for Oracle's technology. This premium being paid entitles us to perceive Oracle as we noted in the second paragraph of this post. This is also wholly consistent with how the innovative oil and gas producer is focused on their key competitive advantages of their asset base, and earth science & engineering capabilities.

Many of Oracle's technologies are the preferred choice in most markets. That is to say that we will use Oracle technology and services at every opportunity. Hardware, operating systems, database, middleware, applications, consulting and services. The only area of conflict in our policies is regarding the Community of Independent Service Providers (CISP). If a member of the CISP and Oracle are providing similar services, we will defer to, and support the CISP.

People, Ideas & Objects as providers of a software development capability and cloud computing provider. Are in partnership with Oracle in bringing this technology to the innovative oil and gas producer. One thing that can be said about Oracle's technology, is that it is the best. When we look at the difficulties in increasing the market supply of oil and gas to the global economy. It is challenges such as these that Oracle is prepared for.

Society is put in peril when world oil production declines. There is evidence that the worlds oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As has been proven, this reorganization could achieve far greater oil and gas production. Management of the industry are conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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Independence of the CISP

The past few months have provided a review of many of the attributes of the Community of Independent Service Providers (CISP). One of the key attributes that we have not been able to discuss or highlight is the independent nature of the people who are part of the CISP community. By independent we simply mean that the people are not affiliated with one producer firm. They are oriented to the Joint Operating Committee (JOC), and therefore do not bring any of the bias that people affiliated with one producer might.

This independence is of importance, particularly in the administrative areas of the oil and gas industry. What is central to the administration of the JOC is the bias towards all of the producers that are represented in the property. For example, it is assumed that most accounting personnel will be affiliated with certain JOC's as opposed to being employed by one firm. If people are affiliated with more then one JOC, which is highly likely, they may be associated with certain geographical regions or producing zones as their specialty. It is the JOC that is their employer / client, not the operator or any single firm that may have hired them.

This discussion precludes any of the administration that would be associated with the compliance and governance related areas of the individual producer firm. Administrators will also be engaged on a producer by producer basis. I will however note that the Compliance & Governance of the firm is mostly oriented to the decisions that are made at the JOC level, therefore, they are more a fallout of the decision process, as opposed to the all consuming activities they appear to be today.

The accounting for the JOC that is done in the People, Ideas & Objects Draft Specification is handled primarily in the Partnership Accounting Module. This module seeks to account for the JOC and the contributions that are made by each participant firm. Effectively eliminating the concept of having one firm designated as the operator, each producers resources are pooled through the Military Command & Control Metaphor. And those resources are costed to the JOC on the basis that they are either chargeable or non-chargeable to the other partners within the specific JOC. The resources that are provided by the CISP , and for that matter any service sector firm, are engaged contractually through the JOC and therefore are independent of any specific producer firm.

As an example, lets consider the manner in which production accounting allocations are handled under the proposed People, Ideas & Objects application. Lets first assume that the entire history of the properties development has been handled by People, Ideas & Objects application and the independence of the CISP . The overriding concern of the production allocation is to ensure that the methods of allocation be consistent with that which is captured in the spirit of the governing agreements. Because the CISP is oriented to the JOC and not one individual producer, interpretation of that agreement is consistent with the spirit. (Not to suggest that this is not the case in current oil and gas production accounting. ;))

Applying this same example to a property who's history has codified the production allocation process. This production allocation process would be adopted "as is" within the Partnership Accounting module.

Action to fund these developments is required. But action can also be taken by those that are employed in the oil and gas industry. Participation in the development of this software, either as a user or member of the Community of Independent Service Providers, is open to all those that may be interested. 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.

Society is put in peril when world oil production declines. There is evidence that the worlds oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As has been proven, this reorganization could achieve far greater oil and gas production . Management of the industry are conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here. 

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The CISP is a marketplace.

If we were to have name tags on each of the birds in this picture. The mother bird of course would be the oil and gas industry. And the others would be PriceWaterhouse Coopers, IBM, Delloitte & Touche, EDS, Accenture, CapGemini etc. To sustain this type of "environment" would not be in the best interests of the innovative oil and gas producers. I see many of the types of services that are provided by these vendors to be in direct conflict with the members of the Community of Independent Service Providers. It is in our best interest to ensure that we don't replicate this relationship in the future. This post explains how the CISP will replace these service providers with value adding services to the innovative oil and gas producers.

Please note that I see the CISP providing much more then the services that are provided by just these firms. Recall some of the key areas where members of the CISP will be providing value include software definition and development with People, Ideas & Objects developers, software installation and integration using Oracle Application Integration Architecture, Accounting Service Provider, Representatives of user group, and conference planner to name just a few. To detail the list of services that are provided by the CISP runs the risk of limiting the imagination of what they can provide the innovative oil and gas producers.

What we are creating in the CISP is a market of self organizing individuals, groups and firms. Participation within the CISP is not limited to anyone, and is open to whomever wants to join. The only requirement is to follow this procedure. Once the license is signed and the summaries are posted, then the individual is free to develop their firm in the best interests of the People, Ideas & Objects software and the innovative oil and gas producer. This membership process would also be open to the named groups at the beginning of this post, if they desired to and believed they could make some money at it.

To eliminate the possibility that the CISP or market of self organizing individuals, groups or firms are precluded from the oil and gas firms business. (As reflected in the above picture.) People, Ideas & Objects needs to implement a policy change in the license that is granted to those licensees of the CISP . That change is to assess a royalty of 40% on any revenues in excess of $5 million to be payable to People, Ideas & Objects. Revenues that are subject to this royalty calculation are those that are derived from working with the People, Ideas & Objects developers and the associated CISP client producer firm.

We are doing this to provide any member of the CISP with an unconstrained $5 million revenue stream. Companies such as those named above, far exceed that threshold and therefore would find the royalty too onerous to be able to compete. This royalty is being implemented to ensure that the members of the CISP remain a market of self organizing individuals, groups or firms.

We have seen the level of innovation and ideas being generated from those named at the beginning of this post. Little if nothing has been generated in terms of implementing new and value adding ideas or technology to the oil and gas industry. Having a market of providers, that is unlimited in terms of who can participate, and financially penalizes the large firms is in the best interest of the innovative oil and gas producers.

Firms that are generating $5 to $10 million in gross revenues (net revenues of $5 to $8 million)  will still be able to generate significant value for their owners. That assumes they are able to build value for their clients, the innovative oil and gas producers. Instead of focusing on quantity, they can focus on the quality of the services they provide and continue to accelerate the specialization of the services provided and the industry division of labor.

Our policies are designed to motivate the members of the CISP to enter and prosper in building value for the innovative oil and gas producer. To develop this resource it is necessary to ensure that these people are free to pursue their business without the risk that they will be eliminated from the market by those mechanisms that are in play in the picture that is reflected above.

Society is put in peril when world oil production declines. There is evidence that the worlds oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As has been proven, this reorganization could achieve far greater oil and gas production. Management of the industry are conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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Intellectual Property Management

On Monday we noted the overall decline in global oil production. As we proceed with the commercialization of the Intellectual Property (IP) that defines this software development project. It is important to point out the nature of the Intellectual Property that is part of the People, Ideas & Objects^TM software development capability and offering. There are two critical areas of concern where the producers should focus on.

1. Ensuring that they are participating within the authorized industry initiative as represented by this IP. As these provide the consolidation of the industry initiative and represent an investment by each producer firm.
2. Ensure that they are not dealing with an un-licensed and non-authorized software development team or community. As these avenues offer no future for the producers investment.

Participation with an unauthorized firm is at the producers sole expense. Producers concerned with the validity of an individual, group, community or firm may email me for further clarification. Every attempt to identify any individual, group, community or firm that are un-licensed will be made by People, Ideas & Objects. Licensed providers are clearly listed on our internal wiki.

Society is put in peril when world oil production declines. There is evidence that the worlds oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As has been proven, this reorganization could achieve far greater oil and gas production . Management of the industry are conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here. 

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World oil production has declined.

Within this post I discuss the current situation with respect to how global oil production has declined. I assert in this post that management must now act to avoid the perception of conflict, and must act to fund People, Ideas & Objects.

In May 2004's Preliminary Research Report I proposed we research the following hypothesis.

• The corporate hierarchical organizational structure is an impediment to progress and most particularly, innovation.
• Determine if the Industry Standard Joint Operating Committee, modified with today’s information technologies, provides an oil and gas concern with the opportunity for advanced innovativeness.

It was through the research of this hypothesis that it was implicitly held that the bureaucracy would cease to provide the market with adequate energy. That day is now closer then we expect, and the time in which to act is upon us. If we do not act in a reasonable period of time, then the economy that we know today, will truly be history. Our first action is to prepare to organize ourselves for the challenge of turning around the productivity in world oil production, and then increasing it substantially to meet the prospective needs of all people.

The Issue.

After five years of static oil production, the U.S. Energy Information Administration (EIA) are reporting that global oil production has declined in 2010. In the chart below, 2010 production can be seen to have declined. This is a significant event in the history of the petroleum industry. As most would predict, I see this decline in production as a direct result of the systemic failure of the bureaucracies in oil and gas, and tacit support for our hypothesis.

It might be argued that the recession is having a detrimental effect on energy demand, however, I think that is an incorrect conclusion. I think it is fair to assume that the prior five years of static oil production was the cause of the run up in the price of oil. Add to this the world economies have resumed a reasonable level of growth, therefore demand would be growing, not in decline. What the chart reflects is an approximate one million barrel drop in production. I believe this is the beginning of the downturn in global oil production. To say that I have a vested interest in selling this system to the oil and gas industry is correct, and that therefore I am biased is also correct. However this fact is perceived, I think action is necessary to begin the developments of People, Ideas & Objects software.

Seizing the Moral High Ground.

I believe the management of oil and gas companies are conflicted. The less they do about the expansion of oil and gas deliverability, the higher the oil and gas prices, and the better they appear as managers. This conflict has been in play for the past five years. With the overall decline in production now upon us. It is time for the management to assume their moral and ethical responsibility to increase global production. This can only be done by expansion of the industry through the proven economic principles of a further division of labor and specialization. Economic principles that we have used in the development of the Draft Specification. Organizing around the Joint Operating Committee, and in a manner for the industry to expand its output.

Management are now being called to do the right thing. Eliminate their conflict and financially support People, Ideas & Objects. During the past five years the bureaucracies that operate the oil and gas companies have stated that the static nature of oil deliverability was not their problem. Their focus was on their own business domain, and that was all that they could consider. Now this situation has changed in a fundamental way. If it is not the oil and gas industries problem, as to how to deliver the market demand for energy, who's is it? The need to move the industry from the perspective of "minding your own business" to the moral and ethical issues associated with a real decline in energy production must begin.

Our recent past has shown that oil and gas companies have chosen not to participate in these software developments. Effective April 1, 2010 our appeal had been re-directed towards those oil and gas shareholders and investors that know there is a better way. Effective today this too has changed. As of today, we are focusing our funding efforts on the bureaucracies management. Invoking their moral and ethical duty that everything be done to ensure the world has adequate energy supplies.

Adam Smith and the Division of Labor.

Funding is required to begin the developments of the software and communities that are part of the People, Ideas & Objects initiative. If we continue to just throw money at the bureaucracies, we will not get anywhere. Our approach to reorganizing the industry must be based on the proven techniques and economic principles of Adam Smith's division of labor and specialization. Just as Adam Smith was able to prove his theories by reorganizing a pin factory, and in the process increase pin production by 250 times. Through use of these same principles, by way of the development of People, Ideas & Objects software, the industry can increase its deliverability of oil and gas.

Build the Software.

Why we need to build software to solve this problem is due to the fact that organizations in our modern economy are defined and supported by software. To state that People, Ideas & Objects is the software that identifies and supports the innovative oil and gas producer, and is counter to the argument that SAP is the bureaucracy. Within the Draft Specification we are moving towards the culture of the industry, the Joint Operating Committee, which is the legal, financial, operational decision making, cultural and communication frameworks of all global oil and gas producers. By recognizing these facts and aligning the hierarchies compliance and governance to the JOC, innovation and speed of operations are the results.

We need to begin the funding of these software developments. Initial development costs have been budgeted in the $700 million to $1 billion range. The method for funding these costs is based on an annual levy of $x / barrel of oil equivalent. That levy has been set at $1.00 for 2010, potentially (conceptually) raising $120 million in one year. Further information on how to participate is located here.

I see these developments as an important turning point in the history of the oil and gas industry. Seeing that our hypothesis has been proven correct. Producers that subscribe to these developments would gain an operational and financial performance benefit from being involved in this software development project. Action to fund these developments is required. 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. 

In Summary

Society is put in peril when world oil production declines. There is evidence that the worlds oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As has been proven, this reorganization could achieve far greater oil and gas production. Management of the industry are conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

Technorati Tags: People's Funding Leadership Management Failure
 

Langlois, Return of the Entrepreneur Part II

In Part I of our review of Chapter 5, "The Return of the Entrepreneur" we discussed the extent of the oil service industry in terms of how it provides the oil and gas producer with its various products and services. I argued that the manner in which they are operated today was eerily consistent with the way the former Soviet Union was managed. Just as the former Soviet Union failed from too centralized control of the commanding heights of the economy. Attempts at centralized management in oil and gas provide many of the same symptoms and outcomes. I have argued here that the oil and gas companies are too involved in the development and planning of what goes on in the service sector. Spending money only for successful innovations that are approved by their management, little if anything from a field level innovation are being developed. For example, if not for the persistence of the individual behind Packers Plus, its doubtful that unconventional gas would exist.

Professor Richard N. Langlois argues in this final installment of his book "The Dynamics of Industrial Capitalism". That Adam Smith's "invisible hand", which was replaced by Alfred Chandler's "visible hand" of management are now being replaced by Langlois "vanishing hand". That markets are the more effective means of managing of day to day operations. This discussion is particularly relevant in the oil and gas service sector, where the majority of the innovation needs to occur. With oil and gas generating over $3.3 trillion in annual revenues, the market is the appropriate location for further development of the industry.

The end and the beginning of history.

Langlois argues in this first quotation that the last 25 years has seen the decline of the large managerial corporation. This may be the case in many industries, however due to the producer firms generating the entire revenue streams of the oil and gas and service sectors, management have maintained their dominant position. This has been at the expense of the innovativeness and speed in the service sector. What we see in the Gulf of Mexico is a pace and thought process that shows the same symptoms of the decline of the former Soviet Union. Reliance on centralized control by the oil and gas management have left little in terms of getting things done.

In the era Chandler chronicles, the large managerial corporation clustered into an important and perhaps dominant place in that population. In the last quarter century, the relative importance of the large managerial corporation has declined, as has its typical level of vertical integration – which makes the population of arrangements today begin to look a lot more like the antebellum one. p. 72

How the producer could benefit from a new perspective on the market is contained within the Draft Specifications Resource Marketplace, Research & Capabilities, and Knowledge & Learning modules. Review of these modules will show the information that is developed and shared between the producers and the service providers. Where ideas can be developed and acted upon in a manner that provides value to the industry.

But the hypothesis I offer here is a bit more subtle, or at least a bit more complicated, and arguably more general. In my view, the phenomenon of the Vanishing Hand is a further continuation of the Smithian process of the division of labor on which Chandler’s managerial revolution was a way station. Thus the Vanishing Hand is driven not just by changes in coordination technology but also by changes in the extent of markets — by increasing population and income, but also by the globalization of markets. Reductions of political barriers to trade around the world are having an effect analogous to the reduction of technological barriers to trade in the America of the nineteenth century (Findlay and O’Rourke 2002). Is this a revolution or the continuation of a long-standing trend? Again, the answer depends on one’s perspective. My argument is that, just as the American “globalization” after the Civil War was revolutionary in its systemic reorganization of production toward standardization and volume, the new era is revolutionary in its systematic de-verticalization in response both to changes in coordination technology and to plain-old increases in the extent of markets. p. 73

In a globalized oil and gas marketplace, producers would benefit from innovative products and services that were developed elsewhere by others. Through the People, Ideas & Objects modules mentioned, they would be able to engage with those service providers and build value in their reserves and production by applying those developments. The Draft Specification would also provide them with the means to further develop their ideas of what might work in their properties. The producer firms building value by enhancing their production and reserves. The service industry firms building value by marketing new and innovative solutions to the global oil and gas industry.

To achieve this realignment of the industries, Langlois makes clear that the market and market supporting institutions are what are needed. Market supporting institutions such as People, Ideas & Objects Draft Specification.

It is a major part of my argument that, as the extent of the market grows, markets (and market-supporting institutions) can take over many of the buffering functions of management. “In the beginning there were markets” is Williamson’s famous heuristic dictum (Williamson 1975, p. 20.) For him, a fair comparison between markets and hierarchies implicitly requires us to assume that the same capabilities are available through contract as would be available to hierarchy. I have been at pains to suggest that, from a historical and evolutionary perspective, this heuristic leads us astray. Especially in times of significant economic transformation, internal organization may arise precisely because the relevant capabilities are not cheaply available through contract. As time passes and the extent of the market grows, however, we should expect markets (that is, “contracting” broadly understood) to become more “capable” (Langlois 1992). As time passes, all other things (including extent of the market) equal, the outlines of new capabilities will become sharper; activities will become more routine and better understood; and capabilities will thus begin diffuse to others. Moreover, economic agents can be expected to discover techniques other than integration for mitigating problems of asymmetric information. As the extent of the market grows, all other things (including knowledge) equal, it will pay to incur the set-up costs that markets and market-supporting institutions (like formal standards) require. Moreover, as markets become thicker, assets are likely to become less transaction specific (because there are many more potentially similar transactions) and relative minimum efficient scale is likely to decline in general. In the end there are markets. pp. 76 - 77

Chandler has shown that management needs buffers to deal with the supply and demand for their products. Buffers such as inventory and supply chains. In markets these buffers, which is the primary role of management, are limited.

Over time, two things happen: (a) markets get thicker and (b) the urgency of buffering levels off and then begins to decline. In part, urgency of buffering declines because technological change begins to lower the minimum efficient scale of production. But it also declines because improvements in coordination technology — whether applied within a firm or across firms — lower the cost (and therefore the urgency) of buffering. p. 78

There is little that I can think of in terms of how significant this level of change would require. Possibly this is why we need to see the complete failure of what has been built before. The culture of the industry is not something that can be changed at will. The decline of the management within the oil and gas companies might be a necessary precursor to the rise of the markets as discussed in this post. Given adequate time, that will happen. What we need to ask is, do our time lines allow for the maintenance of the global deliverability of oil and gas?

This is the Vanishing Hand. Rather than being a general historical trend, the managerial revolution -- in the interpretation -- is a temporary episode that arose in a particular era as the result of uneven development in the Smithian process of the division of labor. p. 78

This next quotation is the final paragraph in Langlois book. We have learned a significant amount from his writings. Selection of the Langlois label will aggregate 55 posts that have been written in the past few years. Langlois writing helps provide a direction in which we can take the oil & gas and service sectors. It is difficult at times to conceive of doing just that, however, removing energy production from our advanced economies will leave us with much more difficult choices.

Chandler’s great contribution was to provide an intellectual framework for the field of business history. The exercise I have set for myself is to rethink Chandler while remaining a Chandlerian (and a Schumpeterian), that is, while attempting to provide a larger intellectual frame for organizational change. Obviously, casting complex historical transitions in terms of simple diagrams is a dangerous gambit; but it does provide a valuable heuristic and a way of calling attention to the importance of factors like the extent and evolution of the market and the changing nature of the coordination problem organization has faced. For more than 200 years, economic growth has been a durable trend in the United States. The same is true of the expansion in the extent of the market and the elaboration of the division of knowledge. Indeed, these trends may be the most significant facts of modern economic and organizational life, even if we often take them for granted. Using these trends as initial (or boundary) conditions in explaining organizational choice is not historicism. But failing to take them into account is ahistoricism. pp. 78 - 79

We will prepare at least one more post on Professor Richard Langlois. This will be on his presentation slides. Review of these slides will provide us with a strong recap on all that we have learned here. 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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Langlois, Return of the Entrepreneur Part I

We now turn to the final chapter "The Return of the Entrepreneur" in Professor Richard Langlois' book "The Dynamics of Industrial Capitalism". What we are doing by moving to the Joint Operating Committee is recognizing the partnership of the property that is held by various oil and gas firms. Moving away from the traditional "corporate" perspective of dealing with the compliance and governance of one producing firm owning many interests in many JOC's. Firms will continue to hold many interests in many JOC's, however, the JOC is a stand alone entity operating in the manner of its multi-firm ownership structure. This latter form of organization has persisted, in my opinion, as a result of the history of management and the development of Information Technologies that were not mature. Langlois notes:

And there are certainly examples of this. But it is also possible that a structure of organization can persist because of “path dependence.” A structure can be self-reinforcing in ways that make it difficult to switch to other structures. For example, the nature of learning within a vertically integrated structure may reinforce integration, since learning about how to make that structure work may be favored over learning about alternative structures. A structure may also persist simply because the environment in which it operates is not rigorous enough to demand change. And organizations can sometimes influence their environments — by soliciting government regulation, for instance — in ways that reduce competitive rigors. p. 58

We are on auto-pilot with respect to how the industry is structured and managed. Use of technology is based on the 1980's version of what a network was, a stand-alone hierarchy. The Internet as a tool has not even begun to impact the myopic structure of an oil and gas firm. With the power and connectivity of the Internet, why are partnerships, which are systemic in the oil and gas industry, not operated as partnerships? Bureaucracies are what brought us to this point, not what will take us to the next level.

From internal to external capabilities: the new economy.

By the 1980s, the large corporation that had looked inevitable and invincible in the 1950s and 1960s had become an organizational structure increasingly misaligned with economic realities — and an organization in the process of redefining itself. As those economies revived and trade began expanding by the 1970s, the easy life was coming to an end. Indeed, by the 80s and 90s, the image of invincibility had been virtually replaced by its opposite. As Mark Roe notes, “the image of the corporation as a sweating and not-always successful competitor has become more vivid” (Roe 1996, p. 106). p. 65

Except in oil and gas. In this next quotation Langlois argues that organizational change is driven by the rewards and potential rewards given to the competitors who make the change. He argues further, that as the rewards increase, the probability of changes increase. Naturally I agree with that statement, however, with the substantial increase in oil and gas commodity prices it would be reasonable to assume the increased motivation to change would be true. I think that the rewards of inaction have been greater for management. Higher profits due to commodity price increases have masked the true state of affairs in oil and gas. In essence management have used pricing as the evidence of their superior management skills, when in reality, they have provided zero or even negative value generation. As time passes and the overall deliverability of the firms production declines, we will know the effect of management.

Ruttan and Hayami (1984) have proposed a theory of institutional change that is relevant to my story of organizational-and-institutional change. As they see it, changes in relative scarcities, typically driven by changes in technology, create a demand for institutional change by dangling new sources of economic rent before the eyes of potential institutional innovators. Whether change occurs will depend on whether those in a position to generate it — or to block it — can be suitably persuaded. Since persuasion typically involves the direct or indirect sharing of the available rents, the probability of change increases as the rents increase. And the more an institutional or organization system becomes misaligned with economic realities, the more the rents of realignment increase. My argument is that these changes in technology and markets opened up attractive rent-seeking possibilities that could be seized only by breaking down or “unbundling” the vertical structure of the managerial corporation. p. 66

In addition to the lack of development in organizational structures in oil and gas. The oil and gas companies management have focused their efforts on field level innovations. Instead of sponsoring and supporting the next innovative Packers Plus or People, Ideas & Objects they vilify them for their forethought. Having secured 100% of the proceeds of oil and gas sales permits them to control all aspects of the development of the industry. Instead of focusing on the key value generating competitive advantages of the firm, their earth science and engineering capabilities, they involve themselves in a process of divine selection of which friends of theirs will receive the benefits of their budgets. As time passed and the cycle of feast or famine continued in shorter and shorter cycles, the service industries continued to atrophy due to a lack of financial resources or people willing to work in oil and gas. The results of this "management" are in plain sight in the Gulf of Mexico. Everyone is at fault and no one can do anything. Instead, what we need to be doing is something along the lines of what Langlois notes here.

When a modular product is imbedded in a decentralized production network, benefits also appear on the supply side (Langlois and Robertson 1992). For one thing, a modular system opens the technology up to a much wider set of capabilities. Rather than being limited to the internal capabilities of even the most capable Chandlerian corporation, a modular system can benefit from the external capabilities of the entire economy. External capabilities are an important aspect of the “extent of the market,” which encompasses not only the number of possible traders but also the cumulative skill, experience, and technology available to participants in the market. Moreover, because it can generate economies of substitution (Garud and Kumaraswamy 1995) or external economies of scope (Langlois and Robertson 1995), a modular system is not limited by the weakest link in the chain of corporate capabilities but can avail itself of the best modules the wider market has to offer. Moreover, an open modular system can spur innovation, since, in allowing many more entry points for new ideas, it can create what Nelson and Winter (1977) call rapid trial-and-error learning. From the perspective of the present argument, however, the crucial supply side benefit of a modular production network is that it provides an additional mechanism of buffering. p. 70

What I see in oil and gas is not the dynamic and innovative industry that it should be. I see the scope of the problems facing the industry escalating exponentially, and the capacity to deal with the day-to-day operations fading. A desperate situation that is made worse by a management that ceased to be effective decades ago. As hard as I have tried to secure funding for these developments, the past seven years have been frightening and shocking. We are quickly coming to a point where the ability of the industry to increase or even maintain its production deliverability is irretrievably lost. I can certainly say that I have done everything that I could to make this situation right.

We have two choices in how we approach the future deliverability of the oil and gas industry. We can continue to throw money at the situation, as BP is doing. Or we can re-organize ourselves to approach the problem in a different fashion. I think the challenges that we face are significant and there is no more important commodity then oil and gas is to society. I vote we re-organize.

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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