McKinsey on Creating Value

In a world where Cash-for-Clunkers and QE II are considered solutions to what ails our economy. It is refreshing to see this presentation by McKinsey Consulting. This presentation is talking about the ways that value is created and destroyed in firms. Although the video at times seems to stumble, it is only in the presentation of difficult material that makes it appear that way. What is being discussed are advanced concepts that need to be adopted by innovative oil and gas producers.

McKinsey identifies four of the mechanisms that generate and destroy value in business. In the Preliminary Research Report it was noted that focusing on growth as a strategy may not generate the value that a producer firm needs. That innovation is a strategy to optimize the value of the producer firm is the focus of People, Ideas & Objects.

In a related paper, McKinsey relates the difficulty for firms to focus on value generation.

It’s one thing for a CFO to understand the technical methods of valuation—and for members of the finance organization to apply them to help line managers monitor and improve company performance. But it’s still more powerful when CEOs, board members, and other non-financial executives internalize the principles of value creation. Doing so allows them to make independent, courageous, and even unpopular business decisions in the face of myths and misconceptions about what creates value.

The Draft Specification provides two modules that make these calculations and enable these decisions to be made, the Performance Evaluation, and Analytics & Statistics modules. These two modules functionality are very similar. The key difference is that the Performance Evaluation module deals with the producer firm and the Analytics & Statistics module views data from the Joint Operating Committee perspective.

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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McKinsey on Centered Leadership

Today we continue on with the topic of leadership with review of two papers from McKinsey (here and here) that look into a research term they call Centered Leadership. Recently we had the opportunity to review an article from John Hagel and John Seely Brown on the need to develop leaders, and we noted how leadership is a skill that can’t be automated by computers. We’ll start with a quick review of the five elements of McKinsey’s centered leadership and then look at each element closer.

Over the past six years, McKinsey has developed a map of capabilities we call centered leadership. This concept has five dimensions: meaning, or finding your strengths and putting them to work in the service of a purpose that inspires you; positive framing, or adopting a more constructive way to view your world and convert even difficult situations into opportunities; connecting, or building a stronger sense of community and belonging; engaging, or pursuing opportunities disguised by risk; and energizing, or practicing ways to sustain your energy on a long leadership journey.

Applying these dimensions to the prospective users and Community of Independent Service Providers provides the following.

Meaning

People, Ideas & Objects is focused on providing the innovative oil and gas producer with the systems needed to identify and support the Joint Operating Committee. Through this revolutionary change, the industry will be able to better manage their operations. We have also asserted that through use of People, Ideas & Objects software and the Community of Independent Service Providers (CISP), we are able to provide the most profitable means of oil and gas operations. This is our competitive advantage and the we derive meaning from these facts. (Most profitable operations are attained through the lowest cost ERP system, and the software identifying and supporting enhanced divisions of labor and specialization.)

Time and again, we heard that sharing meaning to inspire colleagues requires leaders to become great storytellers, touching hearts as well as minds. These skills are particularly applicable for executives leading through major transitions, since it takes strong personal motivation to triumph over the discomfort and fear that accompany change and that can drown out formal corporate messages, which in any event rarely fire the souls of employees and inspire greater achievement.

Framing

People, Ideas & Objects sees the world optimistically. We live in times where intellectual leverage is being offered and made possible by advanced Information Technology. Setting us on a revolution that is equivalent to what we realized through mechanical leverage in the industrial revolution.

Positive psychologists have shown that some people tend to frame the world optimistically, others pessimistically. Optimists often have an edge: in our survey, three-quarters of the respondents who were particularly good at positive framing thought they had the right skills to lead change, while only 15 percent of those who weren’t thought so.

Connecting

To continue on with the theme of revolution, communications are cutting through the bureaucracies enabling us to connect to like minded individuals. People, Ideas & Objects software developments provide users and members of the Community of Independent Service Providers with the opportunity to leverage their connections into the commercial realm.

With communications traveling at warp speed, simple hierarchical cascades—from the CEO down until the chain breaks—are becoming less and less effective for leaders. For starters, leaders depend increasingly on their ability to manage complex webs of connections that aren’t suited to traditional, linear communication styles. Further, leaders can find the volume of communication in such networks overwhelming. While this environment can be challenging, it also allows more people to contribute, generating not only wisdom and a wealth of ideas but also immeasurable commitment.

Engaging

Of survey respondents who indicated they were poor at engaging—with risk, with fear, and even with opportunity—only 13 percent thought they had the skills to lead change. That’s hardly surprising: risk aversion and fear run rampant during times of change. Leaders who are good at acknowledging and countering these emotions can help their people summon the courage to act and thus unleash tremendous potential.

An element of engaging is how People, Ideas & Objects doesn’t take the time and effort of individuals without understanding the risks and fears they may have. Therefore, the ability to move forward with this project demands that the financial resources be in place before anyone is asked to contribute. People, Ideas & Objects will not ask anyone to incur either monetary or career risks from being involved in this project.

Managing Energy

McKinsey notes:

Sustaining change requires the enthusiasm and commitment of large numbers of people across an organization for an extended period of time. All too often, though, a change effort starts with a big bang of vision statements and detailed initiatives, only to see energy peter out. The opposite, when work escalates maniacally through a culture of “relentless enthusiasm,” is equally problematic. Either way, leaders will find it hard to sustain energy and commitment within the organization unless they systemically restore their own energy (physical, mental, emotional, and spiritual), as well as create the conditions and serve as role models for others to do the same. Our research suggests sustaining and restoring energy is something leaders often skimp on.

Sustaining the energy for this project is something that I consider to be an important part of what I do. For the past five years in which we have been writing about using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. We have been able to define the Draft Specification and carry this vision and strategy through some difficult periods. Keeping our “powder dry and our candle lit” for the day in which we begin the development of these systems. This process will continue until such time as the producers learn that their existing ways and means of operation are no longer able to generate value. When producers begin to lose money, we’ll know that our day is close at hand.

Moreover, this survey underscores the impact when leaders embrace not just one or two but all five dimensions of centered leadership. As our 2009 survey also suggested, finding meaning in one’s activities has the strongest impact on general satisfaction with one’s life, but the more dimensions that respondents say they have mastered, the more likely they are to rate themselves highly satisfied with their performance as leaders and with their lives generally.

For this project to succeed leadership from all areas will be needed. As automation of business processes continues and accelerates, skills such as leadership will increase in the day to day activities of most people. Looking ahead what does McKinsey recommend from their research in centered leadership?

• Centered leadership equips leaders for leading change. Among leaders who have mastered all five dimensions of centered leadership, 92 percent say they have the skills to lead through times of major change (versus 21 percent for those yet to master them). Since most executives are living through particularly turbulent economic times, a focus on centered leadership could benefit leaders significantly.
• Big organizations can learn from small ones. Across the board, executives at smaller organizations say they have mastered more dimensions of centered leadership and feel better about their work performance and overall satisfaction. These results suggest that larger organizations have much to learn from small ones on how to attract, motivate, and inspire their employees.
• Future leaders are most at risk. We have long believed that mastering centered leadership is most important for younger women and men who desire to lead, a belief these numbers underscore. The youngest respondents report the lowest scores in all dimensions except connecting. Given the correlation between higher scores and good outcomes, such as leadership effectiveness and general satisfaction, companies would benefit from undertaking the cultural transformation that centered leadership augurs.

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 XI

Our review of the Preliminary Research Report, Professor Dosi’s paper “Sources, Procedures and Microeconomic Effects of Innovation” and the Draft Specification is providing evidence to answer two of our research questions. I think it is becoming clear that innovation can be the result, as our first research question asks, of a quantifiable and replicable process. What also is becoming clear is the lack of the processes that facilitate innovation, will most certainly lead to a lack of innovation. That to leave the process of innovation to chance is irresponsible, reckless and bound to fail.

The second research question we are seeing the answer to; is the Joint Operating Committee is the optimal organizational construct to identify and support innovation. Building the systems that support the legal, financial, operational decision making, cultural and communication frameworks of the JOC is our focus. However, what I am realizing is that innovation is also a framework of the JOC. That is to say we should be stating that the Joint Operating Committee is the legal, financial, operational decision making, cultural, communication and innovation framework of all producers. As a result of this realization I have changed the header to this blog to reflect this change.

Continuing with our review of Professor Dosi’s paper, he begins by summarizing that businesses commit to innovation stemming from exogenous scientific factors and endogenously accumulated capabilities developed by their respective firms. His general point is that “observed sectoral patterns of technical change are the result of the interplay between various sorts of market-inducements, on the one hand, and opportunity and appropriability combinations, on the other”. p. 1141

What opportunities are and will be constrained by not adopting a more innovative organizational structure? If the geological and engineering sciences progress in a substantial manner in the next few years, how will oil and gas companies adopt, employ, test, and prove these science's development without an enhanced capacity to innovate? How much of the drive towards innovation is the beginning of the understanding necessary to expand the science? How much of an inducement are the current commodity prices providing the global competition to innovate? Until producers capture these “appropriabilities” within their ERP systems, such as the Draft Specification does, innovation will be left to chance.

I am not asserting that efforts in the past were not innovative or moved the science substantially. The issue People, Ideas & Objects is raising is that the pace and speed of the science’s development in the near to mid-term, and particularly the long term, will accelerate based on the fact that, globally, reserve replacement continues to be progressively more challenging, and the prices realized for the commodities have begun to reflect these challenges. Professor Dosi (1988) concludes this section with “Finally, the evolution of the economic environment in the longer term, is instrumental in the selection of new technological paradigms, and, thus in the long term selection of the fundamental directions and procedures of innovative search.” p. 1142

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 X

In our review of Professor Giovanni Dosi’s paper, “Sources, Procedures, and Microeconomic Effects of Innovation“ we now ask what are the incentives to invest in the discovery of innovations and there development? Will these depend on the incentives that interested and motivated agents perceive in terms of expected economic returns? Professor Dosi calls “appropriability those properties of technological knowledge and technical artifacts, of markets and the legal environment that permit innovations as rent yielding assets against competitor’s imitation”.

Professor Dosi (1988) notes a study conducted by Richard Levin et al 1984, in which they studied “the varying empirical significance of appropriability devices of (a) patents, (b) secrecy, (c) lead times, (d) costs and time required for duplication, (e) learning curve effects, (f) superior sales and service efforts.” Professor Dosi (1988) observed, “that lead times and learning cures are relatively more effective ways of protecting process innovations, and patents a more effective way to protect product innovations.” Dosi concludes. “Finally, there appears to be quite significant inter-industrial variance in the importance of the various ways of protecting innovations and in the overall degrees of appropriability”. (p. 1139)

Oil and gas producers are focused on process innovations, industry suppliers on product innovations. Recognizing this division of labor is how People, Ideas & Objects Resource Marketplace module provides and facilitates a greater interaction between producers and suppliers. Each group is concerned with securing their innovative capabilities without creating any conflict with the other. (The producer looking to lead times, learning curves while suppliers using patents to protect their innovations and capabilities.)

Levin states that the control of complementary technologies becomes a “rent-earning firm-specific asset”. Professor Dosi (1988) states “in general, it must be noticed that the partly tacit nature of innovative knowledge and its characteristics of partial private appropriability makes imitation a creative process, which involves search, which is not wholly distinct from the search for new development, and which is economically expensive - sometimes even more expensive then the original innovation, and applies to both patented and non-patented innovations.” (p. 1140)

With the fast changing science and technological paradigms and steep trajectories of the industry, the need to have the capability to innovate will be needed for each producer to develop on their own. If the costs of duplication are as steep as the costs of developing the internal capabilities, the producers should then rely on their process innovations to carry their firm. However, that also imputes that a greater level of co-dependency exists. Partners in the Joint Operating Committee will have resources available to commit to the projects and suppliers will have contributions as well. As the Resource Marketplace module seeks to eliminate the redundant and mutually exclusive capabilities being built within each silo’d corporation. The proposed alternative in the Draft Specification is to rely on the marketplace for development and deployment of these innovations.

To restate this another way. With the dual constraints of; the difficulty in increasing the volume of earth science and engineering resources in a material way, and secondly, the demand for greater volumes of science and engineering in each barrel of oil, the need for the producer to rely on the “market” (within the Resource Marketplace module) to define and support their innovative appropriability is a necessity. A means to effectively pool and manage the technical resources made available through the participants in the Joint Operating Committee and service industries, as contemplated in the Resource Marketplace module and Military Command & Control Metaphor.

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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Hagel & Brown on Leadership

John Hagel and John Seeley Brown are two authors that we follow closely here at People, Ideas & Objects. In a Forbes article entitled “Today You Can Only be a Leader by Creating Leaders” they bring up the topic of leadership and how it’s changing.

In a world where automation of transactions and business processes increases, and escalates, particularly with the development of the Draft Specification, leadership is one of the key human actions and skills that can not be automated. A short list of the types of work that people will be involved in in the future is as follows.

• Leadership
• Issue Identification
• Issue Resolution
• Decisions
• Design
• Ideas
• Search

This is to name just a few of the key human activities that will be needed. When we talk about leadership, we note the size and scope of the task that People, Ideas & Objects is focused on. It is the enormity of this task that will require many leaders. Whether its a Product Owner who will work to capture the users demands in the software, or a member of the Community of Independent Service Providers leading a system integration at a producer firm, leadership will be a key skill that will be needed. Hagel & Brown note the somewhat simple process in which this starts.

Leaders can flip these perceptions of risk and reward if they can paint compelling long-term views of the future. This is completely against the grain for most business and political leaders today; they study quarterly numbers to carefully craft a short-term view of the road ahead. Leaders in the big shift will be those who can peer ahead and paint compelling views of opportunities--and not just opportunities for themselves or their institutions but for all kinds of people. If they can help us to make sense of the long-term future, they'll be able to inspire bold action and investment in support of their initiatives, while everyone else sits on the sidelines.

People interested in getting involved with People, Ideas & Objects should contact me here to begin the process of joining this project. People who are interested in building and providing the systems and services the innovative oil and gas producers will need to meet the market demand for energy. We should also take note of the following.

But there will be another even bigger change in leadership. In the past, leaders were measured by how many people followed them. In the era ahead, they will be measured by how many other leaders they can cultivate. We are moving from a world of push, where people are expected to follow detailed scripts to accomplish specified tasks, to a world of pull, where everyone must master the techniques of drawing out people and resources when needed to address unanticipated opportunities and challenges. In the world of push, followers were prized. In the world of pull, everyone must figure out how to become a leader in their own domain.

This makes intuitive sense. With the systems handling the majority of the business, the remaining tasks are not going to be distributed by some all knowing greater power. The more that can be initiated by the leader, the higher the value that is generated for the producers.

Rather than using persuasion to get others to follow predefined programs, the new generation of leaders will use persuasion to help people more effectively draw out their own individual potential. The really effective leader will be one who can persuade emerging leaders to join forces toward common goals and develop faster than they could on their own.

I can’t think of a more exciting place to work. People, Ideas & Objects, the Community of Independent Service Providers offers leaders a place where their skills are needed.

The bottom line: Leaders will no longer be defined by the number of followers they have, but rather by the number of other leaders they have cultivated and mobilized across institutional boundaries. That is a profound shift.

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 IX

And we’re back from a refreshing break. When we look at the decision to implement a new and innovative idea within an oil and gas property, we look to determine where the decision rights reside. In oil and gas the operational decision making authority resides with the Joint Operating Committee. Therefore to increase a firm or industries innovative-ness we have to move the technological and science based innovations closer to the decision making authority in order for them to be implemented. Whereas there may be a meeting of the minds on the course of actions to take, understandably this is also the area where the bureaucracy lurks. Time, or the pace of turnover of these processes, also becomes a critical issue.

In today’s post we will be continuing on with our look at technological paradigms and the effect they have on scientific and innovative trajectories in oil and gas. When discussing these points on innovation, it is important to remember that the sciences, the trajectories they are on, and the opportunities they generate for a producer, are accelerating and will continue to do so. Recognizing the Joint Operating Committee as the key organizational construct, as is done in the Draft Specification, is the means to deal with these scientific paradigms and trajectories, and hence, an area where significant process automation can and will take place through the development of People, Ideas & Objects software applications.

With this process in mind, we note that Professor Dosi suggests two separate phenomenon are observed:

• First, new technological paradigms have continuously brought forward new opportunities for product development and productivity increases. p. 1138
• Secondly “A rather uniform, characteristic of the observed technological trajectories is their wide scope for mechanization, specialization and division of labor within and among plants and industries.” p. 1138

Both of these points are inherently understood. If we approach this process to deal with the administrative attributes within the People, Ideas & Objects application modules, we have an opportunity to release those “new opportunities for product development and productivity increases”. We however, also need to understand that the dynamics of these processes require constant “mechanization, specialization and division of labor” as has been contemplated in the software development capability that People, Ideas & Objects provides. Professor Dosi notes one of the benefits of this.

Similarly, new technological paradigms, directly and indirectly -- via their effects on “old” ones -- generally prevent the establishment of decreasing returns in the search process for innovations. p. 1138

Looking to model the management of this process across all producers within all geographical regions would seem to be a difficult task. However, Professor Dosi notes that there are other serious concerns that need to be taken into consideration.

The appearance of new paradigms is unevenly distributed across sectors and so are (a) the degrees of technical difficulties in advancing production efficiency and product performance, and (b) the technological competence to innovate, embodied in people and firms. pp. 1138 - 1139

Simply not everyone will be working off the same page when it comes to the types of innovation, the scale of their application and degree of complexity. In this next quotation it becomes clear that the process under management by the software is the means in which to be able to deal with these underlying paradigms and trajectories. Therefore, in order for the producers to begin the path of innovativeness requires that we resolve these process design issues, and build the software before they are implementable.

These distributions of opportunities and competence, in turn are not random, but depend on (a) the nature of the sectoral production activities, (b) their technological distance from the “revolutionary core” where new paradigms are originated, and (c) the knowledge base that underpins innovation in any one sector. p. 1139

People, Ideas & Objects believes that if we engineer a software application to deal with these issues, we can accelerate the performance of the producer and the industry. From a systems engineering point of view this has been beyond the scope of one software development team working with one producer. For any producer to undertake the required analysis, let alone development of the systems, is beyond the scope of what was possible or desirable. It is well beyond the scope of any software developer to undertake on their own, in a speculative manner, and therefore has been beyond the imaginations and possibilities of the industry. I would also argue that, in the past, automation of this business process would have generated limited value. Today we can define a more specific division of labor and specialization and therefore, provide a more profitable means of oil and gas operation.

To state this point differently, we can focus the resources of the industry on the comprehensive engineering of these processes. Allocating these costs over the entire energy producing base presents opportunities to undertake the detailed development of software that has not been attempted before. This is the approach that is necessary to deal with the issues associated with the producers meeting the market demands for energy. Management of these processes is the key to enabling the organizational performance, technological paradigms and trajectories that Professor Dosi notes in this paper.

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 VIII

I think it would be easy to attain a consensus that the underlying earth science and engineering, which is the basis of the competitive advantage of the oil and gas producer, is on a steep upward trajectory. The past few years has demanded more engineering and earth science per barrel of oil, and the complexity or difficulty of those inputs are on their own separate but related trajectory. The science of oil and gas will be the means in which producers are able to attain the market demand for energy. In this post Professor Dosi shows how these trajectories are affected by technological paradigms.

Technological paradigms have been directly linked with major scientific breakthroughs, form the discovery of the transistor to the development of modern computer technologies. Professor Dosi states that these links between science and technology have been evident since the days of Leonardo da Vinci and Galileo. What was unique to the 20th century was that the need to generate and utilize scientific knowledge, was internal to, and often a necessary condition of the development of new technology paradigms. Up until the end of the 19th century, most technological innovations were the development of imaginative craftsmen. Many of the 20th century development were the results of multiple disciplines, such as physics and microelectronics, whose scientists were awarded the Nobel Prize in 1962 for the semi-conductor.

Professor Dosi concludes that scientific input into the innovation process is evidence of the importance of factors exogenous to competitive forces among private economically motivated actors. This is subject to two important qualifications.

• Science and Technology are self-fulfilling in their developments.
• Scientific advances play a major direct role, especially at an early phase of development of new technological paradigms. p. 1136

These points support Dosi’s (1988) assertion that “general scientific knowledge yields a widening pool of potential technological paradigms,” where the greatest value is attained in the earlier stages. Professor Dosi analyzes the specific mechanisms through which a few of these potential paradigms are actually developed economically, subsequently applied, and that often have become dominant in their industry. The process of selection depends on the following factors.

• The nature and interests of the bridging institutions between pure research and economic applications. (p. 1136)
• Institutional factors that drive the technology or science, such as (the military) (p. 1137)
• The selection criteria of markets and or techno-economic requirements of early users. (p. 1137) (NASA, Pentagon the FDA and Nuclear Reactors for the Navy.)
• Trial and error associated with the Schumpterian entrepreneurship. 

Professor Dosi (1988) continues on to assert that much of the innovativeness of a firm is dependent on technology more than science, and is based on several implications. The first implication being the net benefactor of the cumulativeness, tacitness and technological knowledge implies that “innovation and the capabilities for pursuing them are to an extent local and firm specific.” Secondly, the “opportunity for technological advances in any one economic activity can also be expected to, and constrained by, the characteristics of each technological paradigm and its degree of maturity”. This is further defined by the technological and scientific capabilities, and “the advances made by suppliers and customers.” (p. 1137)

Recently we learned of the difficulty for a firm to copy another firms ideas or capability provides little to no value. On the contrary the effort to copy the capabilities is as potentially difficult as building their own unique capabilities. Today we learn that innovation is dependent on the technology that supports the firm. That is the technology both enables and / or constrains the capabilities of the producer.

Professor Dosi notes “New technology paradigms reshape the patterns of opportunities of technical progress in terms of both the scope of potential innovations and ease with which they are achieved.” p. 1138. The technology that a producer has includes the ERP systems used within the organization.  When the business is a science, as it is in oil and gas, it would be in the producers interest to remain open and flexible in both its scientific and business approach. This is the strategic position that a producer would be capable of maintaining with People, Ideas & Objects software applications, based on the Draft Specification.

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 VII

We move back to our review of the Preliminary Research report and pick up with Professor Giovanni Dosi’s 1988 paper “Sources, Procedures, and Microeconomic Effects of Innovation.” Last Monday we discussed the difficulty and complexity in identifying and supporting innovation within an oil and gas firm. How both the science and business aspects of the firm need to be addressed. Today we discuss application of our factor of revenue per employee in identifying the level of innovativeness within the firm and / or Joint Operating Committee, and comparing it within a cluster of producers in which a firm competes. A cluster being the larger grouping of producers that are oriented to a single geographical region. People, Ideas & Objects believes that competitiveness between and within clusters will become more of a focus of producer firms. It should also be questioned that in the search for oil and gas, how much of the scientific capability of a producer is dependent on a standard or historical basis of competitive understanding and capability, and how much is based on a future understanding of cooperation within a cluster and / or competition against unknown and unseen global participants? Dosi notes.

In general, each organizational arrangement of a firm embodies procedures for resource allocation to particular activities (in our case, innovative activities), and for the efficient use of these resources in the search for new products, new processes, and procedures for improvements in existing routines; however, the specific nature of these procedures differs across firms and sectors. For example, the typical degrees of commitment of resources vary by industry and so do the rates at which learning occurs. I now turn to the interpretation of these phenomena. p. 1135

Professor Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovate inputs.

Using the factor of revenue per employee helps to define and clarify the value in assessing “the observed inter-sectoral differences” of an oil and gas company in investment outcome. The producer firm would then have the “different incentive structures” and “different opportunities” as the tools in which to increase their revenue per employee. This also reflects that “different incentive structures” and “different opportunities” are the product of the organizational structure that the producer firm employs.

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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McKinsey, The Psychology of Change Management

McKinsey, once again, have published an article that provides real value and discussion to the work we are doing here at People, Ideas & Objects. Change is a difficult process to manage. This article discusses the psychology around change management within organizations, and therefore is relevant, but I want to mention a few aspects of People, Ideas & Objects unique perspective before we review this paper.

There are two types of changes that affect organizations. The first type of change is to steer the ship in a new direction, one that is believed to be the better choice for all concerned. The second type of change is the type that is forced upon an organization by events that are beyond the control of anyone. People, Ideas & Objects is oriented to the second type of change. One that addresses the scope of the forces of change that are being exercised on the oil and producer.

The forces of change that are currently being asserted on the oil and gas producers are significant. The change in oil and gas prices affects all aspects of a producer firm. At the same time the volume of engineering and earth science effort per barrel of oil continues on a steep upward trajectory. A third major change that is occurring is what I would call the maturation of the Information Technologies (IT), bringing new and innovative ways of doing business. These are of the type of changes that are seen once a century. Fundamental changes that have the power to re-configure the makeup of an industry.

To accommodate the changes that are acting against the producer firm, People, Ideas & Objects prescription is to align the producers internal processes. By simply moving the compliance and governance frameworks to be in alignment with the Joint Operating Committee’s legal, financial, operational decision making, cultural and communications frameworks. Our research has shown that this alignment increases innovativeness and accountability, to name just two of the key benefits.

Alternatively, left unaddressed, these changes will soon cause producers to outspend their revenue streams. These losses will also exercise the type of change that is needed within the producer firm and the oil and gas industry. Producers therefore need to choose to ride these forces or continue to resist them. Either way that these changes are made, People, Ideas & Objects will provide the systems and applications that provide the innovative oil and gas producer with the most profitable means of oil and gas operations.

Our claim to be the most profitable means of oil and gas operations is a bold statement. And we assert that this is provided through our value proposition and the enhanced division of labor the software will identify and support. By allocating the one time development costs across the producer base, the costs of software development will fall to a small percentage of what firms have traditionally paid for ERP systems.

With respect to the second component of our claim to being the most profitable means of oil and gas operations. For any industry to increase its economic output demands that an enhanced division of labor be used. This economic theory has been proven time and again over the last few hundred years. We now live in times where to expand on the current division of labor and specialization requires that advanced Information Technologies be employed to identify and support them. People, Ideas & Objects is configured to develop the software that will provide these to the producer firm. This is our fundamental competitive advantage.

McKinsey’s discussion on change is of the first type, or deliberate change an organization undertakes. Nonetheless it provides us with some valuable information regarding change in general.

Over the past 15 or so years, programs to improve corporate organizational performance have become increasingly common. Yet they are notoriously difficult to carry out. Success depends on persuading hundreds or thousands of groups and individuals to change the way they work, a transformation people will accept only if they can be persuaded to think differently about their jobs. In effect, CEOs must alter the mind-sets of their employees—no easy task.

People, Ideas & Objects have presented a workable vision of how the innovative oil and gas producer would operate. This vision is represented in the Draft Specification. People can then see the effect of working in that environment and adjust their actions to fulfill that vision and enable the innovative oil and gas producer.

But what if the only way a business can reach its higher performance goals is to change the way its people behave across the board? Suppose that it can become more competitive only by changing its culture fundamentally—from being reactive to proactive, hierarchical to collegial, or introspective to externally focused, for instance. Since the collective culture of an organization, strictly speaking, is an aggregate of what is common to all of its group and individual mind-sets, such a transformation entails changing the minds of hundreds or thousands of people. This is the third and deepest level: cultural change.

With the benefits of people having this vision in mind. And using the Joint Operating Committee as the key organizational construct of the innovative producer, people will be able to think differently about their work.

Employees will alter their mind-sets only if they see the point of the change and agree with it—at least enough to give it a try. The surrounding structures (reward and recognition systems, for example) must be in tune with the new behavior. Employees must have the skills to do what it requires. Finally, they must see people they respect modeling it actively. Each of these conditions is realized independently; together they add up to a way of changing the behavior of people in organizations by changing attitudes about what can and should happen at work.

In this next quote McKinsey note that cognitive dissonance will affect the people who believe in our purpose. I can only suggest that those people begin the process of joining People, Ideas & Objects or the Community of Independent Service Providers.

The implication of this finding for an organization is that if its people believe in its overall purpose, they will be happy to change their individual behavior to serve that purpose—indeed, they will suffer from cognitive dissonance if they don’t. But to feel comfortable about change and to carry it out with enthusiasm, people must understand the role of their actions in the unfolding drama of the company’s fortunes and believe that it is worthwhile for them to play a part. It isn’t enough to tell employees that they will have to do things differently. Anyone leading a major change program must take the time to think through its "story"—what makes it worth undertaking—and to explain that story to all of the people involved in making change happen, so that their contributions make sense to them as individuals.

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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More on Oracle Fusion Applications

Larry Ellison finished off his 2010 Oracle Open World conference with a keynote that focused on his new applications and other related announcements. I find that his presentations are must see events and this one did not disappoint. Many of the comments that he made will have significant impact on the technology marketplace for years to come. These are some of the points that he made.

When talking about Exadata and Exalogic, the new hardware to run the Oracle database and Java, he continually stressed they were “hardware and software engineered together”. When buying these products every component of the servers configuration is standardized down to the most minute point. They are not something you could order with different components being upgraded or traded on. This was important as the support and services of those configurations will be standard across large portions of Oracle’s marketplace. Therefore if a database server fails for an Oracle customer on the other side of the Atlantic, they can diagnose it, and engineer a fix that can then be populated across the Exadata and Exalogic installed base. A fundamentally different way to deliver hardware and software reliability, accessibility, security and service.

Oracle will continue to spend over $4.0 billion in research and development each year. Oracle Fusion Applications were Oracle’s largest engineering project ever. Another comment that caught my attention was the additions that were being added to Java. He would be introducing new 2D and 3D vector graphics to the specification. These graphics in addition to HTML 5.0 would provide the opportunity to expand and enhance the user interface of People, Ideas & Objects applications.

Comments that were made about Oracle Fusion Applications included their interaction with other ERP applications. One of the key roles we look to the Community of Independent Service Providers is the integration of the oil and gas producers firm on to the People, Ideas & Objects applications. As has been discussed here, this integration will now include Fusion integration with SAP, PeopleSoft, J.D. Edwards and Oracle E-Business. During the presentation Ellison stated that no one would propose a “rip and replace” and this reverse integration was a key attribute of firms adopting Oracle Fusion Applications, and by association People, Ideas & Objects.

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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