S + B, Big Oil and the Natural Gas Bonanza

Booz & Co’s periodical Strategy + Business have published a paper that asks the question;

The oil majors hope to make major money in natural gas, but can they learn to operate two distinct types of businesses under one roof?

Noting that unconventional gas requires a different business model that may not be served by the conventional methods of the industry.

The unexpected revival of natural gas is quietly precipitating a fundamental shift in the oil and gas industry — a shift that few companies were prepared for but that may determine the industry’s overall future makeup. It pits the major oil companies against the independents, which have plied the unconventional reservoirs doggedly over the last seven to 10 years. And it raises questions about whether the oil giants can become big players in this new unconventional gas business. To do so, they will have to develop dual operating models under one roof — one, a traditional high-risk, corporate-led exploration model, and the other, a nimble, efficient, and decentralized operation. In other industries (notably airlines), such two-headed strategies have generally failed.

Change is certainly in the air. Oil and gas prices are probably one of the best measures of the level of change in the oil and gas industry. It is pleasant to see Strategy + Business’ analysis providing confirmation to many of the things that we have stated here. This critique is to ensure the innovative producers remain successful.

In order to compete in unconventional assets, oil majors will have to embrace a dual operating model — in essence, pairing traditional operations with separate and more agile business units modeled after the independent gas firms, with flatter organizations, simpler governance structures, and an emphasis on efficiency and innovation. These attributes are necessary to reduce operating costs, as well as to allow the firms to quickly adapt new well designs, source local contractors and materials, and secure labor as needed.

What concerns me is the nature of the oil and gas industry towards new ideas. There is a culture of how management will not support new ideas, which includes this software development project. I have attributed this to the 1980’s and 1990’s survival strategies that were a necessity in oil and gas. Times have changed and its time for the management to realize they have to act. S + B note.

Above all, management will need to ensure that existing processes and structures do not discount these fresh ideas because of a “not invented here” bias. If a joint venture is part of this approach, the company will need to develop a plan that allows it to learn from the arrangement, by creating formal and informal governance mechanisms to promote the transfer and dissemination of knowledge.

I am under no illusions at the scope of change that we are introducing in this project. Using the Joint Operating Committee as the key organizational construct of the innovative producer will be necessary at some point in the very near future. An idea that resonates with those in the business as something we should have been doing all along. By delaying this project, one in which we have many years of work ahead of us, I believe is dangerous.

If designed and managed appropriately, either strategy could be successful, but history suggests that most of the oil giants will struggle to make dual operating models coexist. Though it may not seem obvious today, many of these companies are likely to find that the technical hurdles of unconventional reserves are relatively minor. Far tougher — and ultimately out of reach for some — will be the challenge of changing behavior and culture. 

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Components of Oracle Fusion Applications

Included in the Oracle announcement is...

Oracle Fusion Financials is part of Oracle Fusion Applications, which are completely open, standards-based enterprise applications that can be easily integrated into a service-oriented architecture. Designed as a complete suite of modular applications, Oracle Fusion Applications help you improve performance, lower IT costs, and get better results. Whether you choose one module, a product family, or the entire suite, Oracle enables you to gain the benefits of Oracle Fusion Applications at a pace that matches your business needs.

Ah we’ll take the whole suite. I’m not going to detail the actual modules that will be used in the application, that's for others to decide. My involvement in the Preliminary Specification and subsequent development is nothing. As I have mentioned here before, I have to choose between doing all of the work or none, and I have taken the sane choice. There is no in between. Although I would love to participate in these developments, my role is to secure the financial resources for the development team and Community of Independent Service Providers.

From what I have been able to read about the application modules, they will be extremely flexible and provide the Community of Independent Service Providers with the ability to bring substantial and innovative systems to their producer clients.

Two things that stand out in my quick review, the first being what’s not there. That is any oil and gas specific functionality or process management. These are generic applications that are designed to be developed further for the individual industries use. That is where People, Ideas & Objects, and the Community of Independent Service Providers, will develop and provide the industry with systems based on using the Joint Operating Committee as the key organizational construct of the innovative producer.

The second point is about the overall architecture of the applications. SAP requires you to pick a process that is close to what you want and cater the firm to that process. As was noted in a recent post, the Oracle Fusion Applications provide the opportunity to design the most efficient organizational process and then build the systems to support the optimal solution.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Larry Ellison Oracle Keynote

We have video highlights of Oracle CEO Larry Ellison's Keynote address. In this video Ellison talks about thier new products ExaLogic and Oracle Fusion Applications.



Oracle ExaLogic complements ExaData which was released within the last year. ExaLogic works to provide the Java Server functions to the ExaData Database.

Oracle Fusion Applications take up the last third of the video and they are all that I had hoped for them to be. Oracle have based the applications on 100% on their Fusion Middleware which provides People, Ideas & Objects with the fine granularity and control of the applications process and functionality. So when we embed, as the Draft Specification states, the production volumes within the Accounting Voucher module. We gain the ability to implement these features in a seamless and efficient manner, with the full integrity of Oracle's investment in Oracle Fusion Applications.

Oracle has put everything they have into the future of Oracle Fusion Applications. The product is the result of "taking the best of Oracle Financials, PeopleSoft, J.D. Edwards and Seibel", based on Java (recall Oracle now owns Java), and the result of five years of development efforts. If Oracle has done this right, which I think they have, they have a sizable opportunity ahead of them.

More good news comes in the form of when the applications will be generally available. It is reasonable to assume that they will have these applications available in the first half of 2011 which is in line with our needs of starting the development of the Preliminary Specification on January 1, 2011.

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Professor Giovanni Dosi, Part VI

People, Ideas & Objects focus is on providing ERP systems based on using the Joint Operating Committee as the key organizational construct of the innovative producer. The reason for doing this is to support the innovative oil and gas producers in the difficult processes of identifying and supporting innovation. In this first quotation, I find Professor Dosi has captured the difficulty the producer faces in the scientific and business processes of the firm.

In general the uncertainty associated with innovative activities is much stronger than that with which familiar economic model deals. It involves not only lack of knowledge of the precise cost and outcomes of different alternatives, but often also lack of knowledge of what the alternatives are (see Freeman 1982; Nelson 1981a; Nelson and Winter 1982). 

In fact, let us distinguish between (a) the notion of uncertainty familiar to economic analysis defined in terms of imperfect information about the occurrence of a known list of events and (b) what we could call strong uncertainty whereby the list of possible events is unknown and one does not know either the consequences of particular actions for any given event (more on this in Dosi and Egidi 1987). 

I suggest that, in general, innovative search is characterized by strong uncertainty. This applies, in primis to those phases of technical change that could be called pre-paradigmatic: During these highly exploratory periods one faces a double uncertainty regarding both the practical outcomes of the innovative search and also the scientific and technological principles and the problem-solving procedures on which technological advances could be based. When a technological paradigm is established, it brings with it a reduction of uncertainty, in the sense that it focuses the directions of search and forms the grounds for formatting technological and market expectations more surely. (In this respect, technological trajectories are not only the ex post description of the patterns of technical change, but also, as mentioned, the basis of heuristics asking “where do we go from here?”) p. 1134

Lets be clear, the uncertainty resides in both the scientific and business realms. I am not of the opinion that the two can be separated, as is done in other systems such as SAP. This is maybe why the industry has been poorly served, in my opinion, by the business systems that operate today. They don’t recognize the innovative and science basis of the business.

However, even in the case of “normal” technical search (as opposed to the “extraordinary” exploration associated with the quest for new paradigms) strong uncertainty is present. Even when the fundamental knowledge base  and the expected directions of advance are fairly well known, it is still often the case that one must first engage in exploratory research, development, and design before knowing what the outcome will be (what the properties of a new chemical compound will be, what an effective design will look like, etc.) and what some manageable results will cost, or, indeed, whether very useful results will emerge. p. 1135

Add to this situation the complexity of interactions of the producers that are represented in the JOC and we begin to see the difficulty expressed by Professor Dosi. Having misaligned frameworks where the bureaucracy is attuned to only compliance and governance of the firm. Is the easy way to deal with the complexity and difficulty in this business. In other words just ignore it. This is how you have CFO’s stand up at the annual meeting and state that, on a budget basis, the firm will produce an additional 10% next calendar year. Dosi notes;

As a result, firms tend to work with relatively general and event-independent routines (with rules of the kind “... spend x% of sales on R & D,” ... distribute your research activity between basic research, risky projects, incremental innovations according to some routine shares ...” and sometimes meta-rules of the kind “with high interest rates or low profits cut basic research,” etc.). This finding is corroborated by ample managerial evidence and also by recent more rigorous econometric tests; see Griliches and Ariel Pakes (1986) who find that “the pattern of R & D investment within a firm is essentially a random walk with a relatively low error variance” (pp. 10 - 11). In this sense, Schumpeter’s hypothesis about the routinization of innovation (Joseph Schumpeter 1942) and the persistence of innovation-related uncertainty must not be in conflict but may well complement each other. As suggested by the “late” Schumpeter, one may conjecture that large-scale corporate research has become the prevailing form of organization of innovation because it is most effective in exploiting and internalizing the tacit and cumulative feature of technological knowledge (Mowery 1980; Pavitt 1986). Moreover, companies tend to adopt steady policies (rules), because they face complex and unpredictable environments where they cannot forecast future states of the world, or even “map” notional events into actions, and outcomes (Dosi and Orsenigo 1986; Heiner 1983, 1988). Internalized corporate search exploits the cumulativeness and complexity of technological knowledge. Together with steady rules, firms try to reduce the uncertainty of innovative search, without however, eliminating it. pp. 1134 - 1135

Such was the state of business in 1988 for Professor Dosi. I would argue that the luxury of time in 2010 doesn't exist. Given all the time and all the resources we are able to achieve great things. Dealing with the real world constraints of the science of oil and gas in this business has to be purposely addressed. That is the business of People, Ideas & Objects in developing the systems defined in the Draft Specification.

Internalization and routinization in the face of the uncertainty and complexity of the innovative process also point to the importance of particular organizational arrangements for the success or failure of individual innovative attempts. This is what was found by the SAPPHO Project (cf. Science Policy Research Unit 1972 and Rothwell et al. 1974), possibly the most extensive investigation of the sources of commercial success or failure of innovation: Institutional traits, both internal to the firm - such as the nature of the organizational arrangements between technical and commercial people, or the hierarchical authority within the innovating firm - and between a firm and its external environment - such as good communication channels with users, universities, and so on - turn out to be very important. Moreover, it has been argued (Pavitt 1986; Robert Wilson, Peter Ashton and Thomas Egan 1984) that, for given incentives and innovative opportunities, the various forms of internal corporate organization (U form versus M form centralized versus decentralized, etc.) affect innovation and commercial success positively or negatively, according to the particular nature of each technological paradigm and its stage of development. p. 1135

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Quick Post - Oracle Fusion Applications

This is a quick note that on Sunday Oracle will begin their 2010 Oracle Open World conference. The main announcement that is of particularly interest to us involves their Oracle Fusion Applications. These are the next generation ERP applications that all of Oracle’s installed base, consisting of Oracle Financials, PeopleSoft, J.D. Edwards and Siebel, will eventually move to. Built on the Oracle Fusion Middleware Java server, these applications are developed with the future in mind and represent a multi-billion dollar investment by Oracle.

People, Ideas & Objects are Oracle customers and are including Oracle Fusion Applications within our software offering. We are leveraging that multi-billion investment that Oracle has made with the Intellectual Property (IP) around using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer.

What does Oracle Fusion Applications have in store for the oil and gas firm? It’s unknown at this point. Of the many industries that Oracle applications cater too, oil and gas is on the lighter side in terms of investment and features. I expect this to be the case for the new Oracle Fusion Applications. If they were making any oil and gas specific investments I think we would have heard about them. Nonetheless, irrespective of Oracle’s plans in oil and gas, People, Ideas & Objects will build the applications based on the Draft Specification and Oracle Fusion Applications.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Professor Giovanni Dosi, Part V

Today’s post leads ultimately to the difficulty for the producer in defining where the boundary of the firm and markets begin and end. Much research has been conducted in this area, and the Draft Specification draws a definitive line between the firm and the marketplace. There the marketplace is represented in the Joint Operating Committee. The primary reason for this definition of the boundary of the firm and marketplace is the proprietary earth science and engineering capability and information that the producer firm holds.

The question therefore becomes how is this proprietary information and capability deployed on an as needed basis. Professor Dosi notes that although the free movement of information has occurred in industries for many years, yet has never been easily transferable to other companies within those industries. The ability to replicate a competitive advantage from one company to another is not as easy, and may indeed be not worthwhile doing. Dosi (1988) goes one step further and states, “even with technology license agreements, they do not stand as an all or nothing substitute for in house search.” A firm needs to develop “substantial in-house capacity in order to recognize, evaluate, negotiate and finally adapt the technology potentially available from others.” Therefore why not focus on the need to increase the companies own unique and specific competitive sources and directions.

This also imputes that the free flow of information between producers through collaborations in the Joint Operating Committee would increase the knowledge, yet not expose anyone of the specific organizations to any specific losses of key knowledge, proprietary information or capability.

Information’s shelf life expires faster each day. Knowledge and information need to be employed and deployed where and when they are required. This research’s collaborative method of employing the intellectual property might facilitate a greater value, to the participating producer, and would provide the groundwork for future innovations and expansion of the underlying engineering and earth sciences. And although no specific proof of this can be sourced at this time, today’s hierarchical organizational structure is the impediment to the speed of innovation developments, its adoption and application, and it is asserted through this Preliminary Research report that this is tacitly understood.

Professor Dosi (1988) cites the dichotomy of Adam Smith in that organizations are comprised of those that “system learning effects on economic efficiency by way of the division of labor,” and “the degrading brutality which repetitive and mindless tasks could imply for some groups of workers”. These support the “how to do things” (the JOC) and “how to improve them” (the producer firm).

This dichotomy reflects the challenge of improving the processes and products through trial and error, with heavy emphasis on the error. The ability to accurately predict the success or failure of a new idea contains inherent high risks and hence high rewards. This is one of the constraining factors in implementing innovative thinking, in that no one wants to be proven wrong. Whereas, even if the idea fails the ability to test the theory, the failure may ultimately lead to and may be the key to discovery. Professor Dosi states;

Organizational routines and higher level procedures to alter them in response to environmental changes and / or to failures in performance embody a continuous tension between efforts to improve the capabilities of doing existing things, monitor existing contracts, allocate given resources, on the one hand, and the development of capabilities for doing new things or old things in new ways. This tension is complicated by the intrinsically uncertain nature of innovative activities, notwithstanding their increasing institutionalization within business firms. p. 1133

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Professor Giovanni Dosi, Part IV

In yesterday’s post we noted that the comparison of revenue per employee over multiple periods would impute a trajectory of the firm or Joint Operating Committee’s innovativeness. Recall Professor Dosi notes that innovation is developed through the interactions between the “capabilities and stimuli” and “broader causes external to the individual industries such as the state of science”. In today’s post we take the concept of this trajectory, define it, and apply it to oil and gas.

The definition of a technological trajectory is the activity of technological process along the economic and technological trade offs defined by a paradigm. Dosi (1988) states “Trade-offs being defined as the compromise, and the technical capabilities that define horsepower, gross takeoff weight, cruise speed, wing load and cruise range in civilian and military aircraft.” People, Ideas & Objects assumes the technical trade-off in oil and gas is accurately reflected in the commodity pricing. Higher commodity prices finance enhanced innovation.

These trade-offs facilitate the ability for industries to innovate on the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs the change and is usually abundant and available at low costs. For innovation to occur in oil and gas, People, Ideas & Objects would assert that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of technical paradigms which will provide companies with fundamental innovations.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Professor Giovanni Dosi, Part III

In our previous post we introduced revenue per employee as a factor of determining the innovativeness of a producer firm or Joint Operating Committee. Asking if the calculation would provide a reasonable comparison of the innovativeness that exists. However, would this calculation reflect the quality of assets, the size of the firm or its actual innovativeness? That is the question that is being answered in this post.

Clearly the revenue per employee would reflect many factors other then the innovativeness of the firm or JOC. However, would the comparison of revenue per employee over multiple periods be a determining factor of innovativess? I think it would. That the increase / decrease in the factor would be as a result of an increase or decrease in price and volume, with the volume being particularly affected by the changes and innovations that occurred over the period in the firm or JOC.

Much analysis has been undertaken to determine the actual outputs from innovation and compare those to the input costs and attempt, as one does in today’s technology environment, to determine a return on investment on technology, innovation and research and development.

Professor Dosi reviews a number of studies that focus on quantifying the output part of the equation. These are comprehensive in the number, heterogeneous in the conclusions, yet, Dosi feels he has been able to find a number of threads that determine which factors or characteristics are influential and of crucial importance in the economics of technological change.

Professor Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or “tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? Clearly some companies are more effective at this process then others, but this research in oil and gas asks, is there a means for an organization to provide a quantum increase in its ability to innovate that leads to higher trajectories of performance based on production revenue per employee?

If the knowledge of the underlying oil and gas sciences increases in its understanding, what organization structure can best facilitate innovation? Would “any” organizational structure have a requirement to parallel the changes and developments in the sciences? How are the scientific problems, the refinement of models, the discovery and success of innovative thinking communicated throughout a bureaucracy? Self-organizing teams, as represented by the JOC, provide the most effective and efficient means of organizational structure.

It is this enhanced innovativeness that using the JOC as the key organizational construct provides. Matching the faster pace of change in the underlying sciences and mapping the necessary changes within the organization will be a means of increased performance within the producer / JOC. Providing the foundation for the producer to build their competitive advantages and scientific and engineering capabilities.

In addition to providing a strong competitive advantage to the producer firms, use of People, Ideas & Objects software applications would also provide the most profitable means of oil and gas operations. Recall this is the competitive advantage of this software development project and the Community of Independent Service Providers. We provide this second value added process to the innovative producer by ensuring that the most effective division of labor and specialization, defined and supported by the software, are used in the day to day operations of the oil and gas producer.

Therefore when we consider the calculation of revenue per employee, we see these two forces in play. The first being the producer / JOC moving with the changes in their earth science and engineering capabilities. And secondly, with the most profitable means of oil and gas operations based on using the People, Ideas & Objects software applications enhanced division of labor and specialization, and our Community of Independent Service Providers.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Professor Giovanni Dosi, Part II

In this the second part of our review of the Preliminary Research reports summary of innovation. We note Professor Dosi’s key factors of innovation, and its application to oil and gas. One of the breakthroughs that was determined in the Preliminary Research report was the use of revenue per employee as a means of determining what the producer firm and / or Joint Operating Committee could use as a determination of its level of innovativeness.

In determining the key factors of innovation Professor Dosi notes:

The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:

• Capabilities and stimuli generated with each firm and within the industry of which they complete.

and

• Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.

Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

Based on the capabilities and stimuli of innovation present in the oil and gas sector, particularly the microeconomic effect of the commodity prices, it is reasonable to conclude that oil and gas would be an area where significant innovation can and needs to occur. The primary reasons for the future enhanced innovation is due to the following analysis of the industry.

The capacity to enhance reserves is significantly more challenging than as little as five years ago. Exploitation is generally expected to continue, however, an enhanced role for various degrees and types of exploration is expected to commence. The energy frontier brings many new risks and complexity in the area of technical, political and the environment. These account for much of the changes in stimuli and capability that Professor Dosi states is required to facilitate further innovation.

Secondly, microeconomic trends associated with changes in the relative prices of outputs. Oil and gas prices are beginning to reflect the scarcity, importance and value of the commodities to society.

To attain concurrence on these factors of innovation would be easy. What is needed in oil and gas is a measure of innovativeness that could be applied to the oil and gas producer or to a specific JOC. As was mentioned in the opening paragraph of this post, the Preliminary Research determined that an appropriate measure of innovativeness is the revenue per employee of a producer firm or JOC. Differences in performance are imputed to be the overall net result of the investments, both organizational and science based capabilities, and innovativeness of the firms. To make an effective change in the revenue per employee requires a substantial effort to increase the output of the firm or JOC. We will contiue to use and elaborate on this factor throughout our remaining review.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Professor Giovanni Dosi, Part I

We now begin a review of Professor Giovanni Dosi’s 1988 paper “Source, Procedures, and Microeconomic Effects of Innovation.” This was the key paper that was reviewed in the Preliminary Research report. As a result of the publication of this paper, Professor Dosi has gone on to become one of the premier authorities on business innovation.

Professor Dosi’s article discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. The key aspects of Professor Dosi’s theories that make them directly applicable to oil and gas are the innovation theories application to earth science and engineering disciplines. These disciplines are key to the capability and success of oil and gas firms search, and production of, hydrocarbons. The investment in science and technologies is with the implicit expectation of a return on these investments, but also, to provide the firm with additional structural competitive advantages by moving their products costs and / or capabilities beyond that of the competition. Professor Dosi note:

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

We have asserted in People, Ideas & Objects that higher commodity prices are a re-allocation of the financial resources towards the innovative producer. This is reflective of the changes from the easy energy era, to one that will be dominated by the earth science and engineering capabilities of the innovative producer. What is necessary is for producers to build People, Ideas & Objects Draft Specification which will enable them to align their resources towards innovation. That alignment being the movement of the compliance and governance frameworks of the hierarchy to the legal, financial, operational decision making, cultural and communication framework of the Joint Operating Committee (JOC).

One of the difficulties in reviewing this paper is the comprehensive nature of its content. I recall how difficult it was to review during the Preliminary Research report, and it appears to have only maintained its degree of difficulty. The content of the paper is accurately reflected in this following quotation.

The discussion will aim to identify (a) the main characteristics of the innovative process, (b) the factors that are conducive to or hinder the development of new processes of production and new products, and (c) the processes that determine the selection of particular innovations and their effects on industrial structures. 

Recall two of our four research questions are to determine if the processes of innovation are able to be reduced to a quantifiable and replicable process, and, does the JOC facilitate the means to innovate. It would appear to me that the selection of this paper to review these research questions. Was the reason we are / were able to answer these difficult questions. Professor Dosi notes:

There are two major sets of issues here: first, the characterization, in general, of the innovative process, and, second, the interpretation of the factors that account for observed differences in the modes of innovative search and in the rates of innovation between different sectors and firms and over time. 

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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