McKinsey on Productivity

Its the weekend and we have two McKinsey articles to fill in the time with some topical discussion. This first article is on productivity and how we need to accelerate, through innovation, our productivity to ensure job growth continues.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XVI (PA Part II)

One of the difficulties in discussing the Partnership Accounting module in the manner that I am is that the discussion is limited to the understanding of one person. Although I have a good understanding of how oil and gas operates it is limited to one persons view. The purpose in these developments is to have the community develop the Preliminary Specification and therefore have the full perspective of all aspects of how the industry operates. This limitation, although obvious in the other modules, is most evident in the Partnership Accounting module.

When we talk about the scope of operations that would be managed under the Partnership Accounting module I would say that it includes just everything. Simply the cut-off would be the inlet or outlet to any refinery. Therefore the total scope of any upstream oil and gas operation. Let me be more specific about that from the point of view of geography and type of operation managed by the People, Ideas & Objects application.

If we look at the North American oil and gas infrastructure we see a variety of oil and gas installations designed to serve both producers and consumers of oil and gas. Wells, gathering systems, gas plants, pipelines, storage facilities etc. At each point along these systems there may be additional deliveries of product, or sales of product or products inventoried. What seems to be an obvious and simple business becomes incredibly complex when it realized that each asset may be owned by a Joint Operating Committee itself and hold product on behalf of owners of other Joint Operating Committee’s. This summary glosses over the incredible complexity of this business when the volume of transactions that occur in these businesses make it an important part of the oil and gas operation.

Critical to controlling the business is the material balance report that is part of the Preliminary Specification. It is the central document that so much of the subsequent activity is based upon. If someone is to be charged for storage of butane for example, or if someone is to be charged a marketing fee for delivery of product to a customer. Or simply if a sale of a raw gas stream is deemed to have occurred at the well head. The material balance report captures these transactions and initiates the flow of documents that need to be generated. It is these documents that also need to be captured and generated in the People, Ideas & Objects Preliminary and Other Specifications. To name them all would require some understanding and consensus amongst the community which would include the producers.

To state as simply as this that the scope of the Partnership Accounting module captures all of these activities for all of these facilities is its purpose. Each material balance report must balance. And each reports inputs and outputs balance to other material balance reports. (This will be an important consideration in the upcoming Accounting Voucher.) Many of these reports are from one company to another.

As we explore the Partnership Accounting module further we see the reasons why we are taking such a broad scope of operations into considerations. It would be an understatement to state that this area has been poorly served by IT. To approach it from a global perspective that includes production operations, accounting and the other areas that depend on this information would be “ideal”, however, the complexity of the business has always been in the way. The engineering of software has never been available to approach the type of problem that this area presents. I think it exists now. And I think that the Partnership Accounting and Accounting Voucher modules of People, Ideas & Objects provides the vision of how this engineering solution solves this problem.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XV (PA Part I)

With our last post on the Financial Marketplace module we temporarily leave our review of the three marketplace modules and move on to the Partnership Accounting module. The Partnership Accounting module is the a pure “accounting” module from the traditional sense, however, I think there are many attributes and concepts of this module that make it unique and of interest to everyone in the industry.

So for the accountant in all of us, why don’t we start off with the statutory list of required functionality and output. And then tomorrow get into some of the new concepts and differences that are as a result of using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. So here we go, great stuff!

• General Ledger
• Account Payable and Receivable Detail
• Payments
• Revenues and Royalties (Gross & Net)
• Capital and Operating (Gross & Net)
• Statement of Operations
• Statement of Expenditures 
• Gas Cost Allowance (Unique to each participant in a JOC)
• Trial Balance
• Balance Sheet
• Income Statement
• Statement of changes in financial position.
• Field data capture.
• Material balance c/w inventory control. 
• Nomination and contract fulfillment.
• And many, many more

This is standard fare for any software provider in oil and gas. As we will see in subsequent posts the difference in the People, Ideas & Objects software application is substantial in that the Joint Operating Committee is treated as the partnership that it is. It also recognizes that the costs of the property for each of the producers within a Joint Operating Committee is unique, as are the strategies that are employed.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XIV (FM Part IV)

This will be our last post on the Financial Marketplace module in terms of our Preliminary Specification output discussion. In this post we will discuss some of the generic reporting requirements of the module. These interfaces are of a financial nature and reflect the types of people (accounting and finance) that will be working within the module. This post looks at the reporting from both the Joint Operating Committee and the producer perspectives.

Our discussion of the costs of administering high levels of banking due to using the Joint Operating Committee as the key organizational construct of the innovative producer is an important consideration in this discussion. We have two choices to deal with these high administrative costs. We can hire a lot of people, or alternatively we can highly engineer the software that the industry will use to deal with the administrative burden. A highly engineered software solution, backed up with a software development capability such as is proposed by People, Ideas & Objects I think would earn the general consensus.

Understanding the marketplace metaphor and the discussion regarding bankers and investors in previous posts, the module would include, but in no way would be limited to, the following.

Joint Operating Committee perspective.

• Banking deposit and payment processing.
• Account reconciliation and analysis.
• Short term asset reconciliation and management.
• Dynamic working capital determinations.
• Short term liabilities accounts and management.
• Long term liabilities accounts and management.

From the producer perspective.

• Banking deposit and payment processing.
• Account reconciliation and analysis.
• Short term asset reconciliation and management.
• Dynamic working capital determinations and allocations.
• Short term liabilities accounts and management.
• Long term liabilities accounts and management.
• Shareholder equity accounts and management.
• Consolidated JOC working capital.
• Uncommitted consolidated JOC working capital.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XIII (FM Part III)

In our two posts regarding the Financial Marketplace module we have discussed both the relationship with bankers and investors. In the first post we noted that the module provided the choice to either maintain the banking relationship between each partner in the Joint Operating Committee. Or alternatively each Joint Operating Committee might be represented by one bank for all partners. In our second post we noted that the interfaces and tools that could be available to establish a marketing relationship between the producer and the investment community. Where there were possibilities to have the property securitized and other means in which “ownership” might be different then what exists today.

Today I want to briefly discuss the logistical implications of having these types of situations operational in an oil and gas firm. To suggest that this would make the financial aspects of a producer firm simpler would be contrary to the reality of a system that is providing these types of opportunities. Simply the legal and financial reporting and logistical requirements would be an order of magnitude more voluminous. It is fair to assume that the producer firm would need to maintain a banking relationship with most of the banks that had a presence in the oil and gas business. That relationship would include loans, accounts and all of their services. Managing for each loans financial requirement would become unbearable. Causing all kinds of administrative and management burdens that would otherwise not be incurred in today's systems.

Crap. All of these are done today, albeit on a smaller scale, in most companies. Adding a multiple of volume through automated systems such as what is being discussed in the Draft and Preliminary Specification makes the prior discussion a mute point. What is not realized is that the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. By enabling the financial constraints of the property to be just the financial constraints of the property and only the financial constraints of the property. The participants in the Joint Operating Committee are free to deal with those that are financially motivated in dealing with the issues of that Joint Operating Committee. There are no more of “them”, who are never in attendance at meetings anyway. When it comes time to make a decision, a decision can be made.

Its not that the decisions are made in the Financial Marketplace module. What this module is doing is aligning the financial interests of the Joint Operating Committee so that the decision rights are in alignment with the operational decision making authority. The financial, legal and operational decision making authority resides in the Joint Operating Committee and the alignment of these interests makes the ability to decide the best course of action possible. Currently, the muddling of these frameworks by general assignments to banks by each producer, and some nameless and faceless investor, limit the flexibility of the decision making authority of the engineers and earth scientists who are responsible for the performance of the property. By focusing the ownership and operating resources on the assets of the Joint Operating Committee, the consensus can be achieved and decisions can be made.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XII (FM Part II)

It is the Financial Marketplace module in which I really throw the cat amongst the pigeons when I talk about the redundancy of the bureaucracy. Yet when I reflect on the past three years, I see the investment marketplace holds the oil and gas producers management in not much better esteem. There is a general dissatisfaction within the oil and gas investor community. How much of this dissatisfaction is to do with the overall financial market meltdown, and how much is to do with a general dissatisfaction with the oil and gas industry itself is unknown.

The fact of the matter is that with the run up in the prices there has been an even greater run up in the costs of production and operations. Management have provided no upside from the price increases. A management that have provided no upside on 400% price increases will not provide any upside on any further price increases. And it is quite probable that significant financial losses will arise as a result of any price declines. So there is much to be concerned about when it comes to the current state of affairs in the manner in which the oil and gas industry is managed.

I’m glad that I am on record for being critical of management, and that I am the one that management have been kicking with such vigor. It’s one thing to be right, another for management to have been so wrong for so long. Nonetheless, the industry is going through a fundamental change. One in which the earth science and engineering resources needed to discover and produce the base commodities are under increasing demands. We therefore need to organize ourselves for this new challenge.

The Financial Marketplace module provides a window for the producer to deal with the bankers within the Joint Operating Committee. This is as we discussed in last Friday’s post. Whether a producer chooses to have each participant maintain their own bank representative. Or, each Joint Operating Committee has one banker for all the producers represented in the Joint Operating Committee is a choice provided by the Financial Marketplace module.

Today’s post shows the critical role of the investor in the long term health of the oil and gas industry. I think in order to have them participate in the industry, again, will require they are provided with new tools and opportunities to invest in oil and gas. In the Draft Specification it was suggested that possibly the working interest share might be a securitized investment. I think on the basis of the past three years history, that it should be considered that the investment community might have some enhanced tools and interfaces to the producer through the Financial Marketplace module of the People, Ideas & Objects software application. After all its a marketplace.

The interfaces and tools that I am thinking are not of the statutory type that are required by various regulatory agencies. These are provided through the Compliance & Governance module of the People, Ideas & Objects application. The type of interfaces that I am thinking that may be used in the Financial Marketplace module would be more of the marketing style. Where the producer is out selling their investment to the “financial marketplace” in order to secure future investments. Ways to initiate dialog and for information and discussion to start the relationship between the investor and the producer.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

McKinsey, The Perils of Bad Strategy

This McKinsey paper is a must read. Written by Professor Richard Rumelt it provides a critical review of strategy. A review of which we can evaluate our strategy of using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. In this paper entitled “The Perils of Bad Strategy” Professor Rumelt states:

A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And, if you cannot assess that, you cannot reject a bad strategy or improve a good one.

The challenge that I foresee the oil and gas industry experiencing is the heavy demand for the commodity. In most situations this would be considered a positive thing with the positive effect on prices and the resulting windfall profits that would naturally arise. However, a second sober look at the implications of the high demand shows the activity levels will need to increase. Next, the fact that each unit of energy requires an ever increasing level of earth science and engineering effort for each unit of production. These two facts demand more of a critical human resource that is difficult to increase to meet these demands. More earth scientists and engineers are not readily available to satisfy these new demands. Therefore we need to deploy the resources we do have more strategically.

In the Resource Marketplace module we have talked about a revised boundary between the market and the producers. Where the producers are focused on their asset base, consisting of their leases and physical assets, and their science and engineering capabilities which they apply to their asset base. The rest of what they need has to come from the marketplace. There are companies like Encana Corporation that feel they can do it all. Encana has dozens of drilling rigs that they own and operate, I assume because the drilling firms are unable to drill Encana’s wells to Encana’s standards. Soon they’ll be opening a drill bit division. This is the point that Professor Rumelt is making in this next quote.

Good strategy, in contrast, works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favourable outcomes. It also builds a bridge between the critical challenge at the heart of the strategy and action—between desire and immediate objectives that lie within grasp. Thus, the objectives that a good strategy sets stand a good chance of being accomplished, given existing resources and competencies.

Focusing on finding and producing the oil and gas is the key value add for an oil and gas producer. Everything else is secondary and should be provided to the producer through the market mechanism. People, Ideas & Objects also provide the opportunity to pool the earth science and engineering resources represented in the Joint Operating Committee’s participants to further ease the demand on these resources. This is done through what we call the Military Command & Control Metaphor. Building the earth science and engineering capabilities necessary within each producer firm creates unnecessary competition for these resources. Pooling increases the supply / availability of these resources to the producers, therefore eliminating waste, excessive demand and redundancies.

Despite the roar of voices equating strategy with ambition, leadership, vision, or planning, strategy is none of these. Rather, it is coherent action backed by an argument. And the core of the strategist’s work is always the same: discover the crucial factors in a situation and design a way to coordinate and focus actions to deal with them.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

McKinsey, On Organizational Health

It’s the weekend, which means its time for some McKinsey content. Today’s post provides some discussion around the topic of organizational health in a paper entitled “Organizational Health: The Ultimate Competitive Advantage.” This paper comes with a short video presentation by the authors and is a summary of their upcoming book. The substance of their work is captured well in this following quote.

Organizational health is about adapting to the present and shaping the future faster and better than the competition. Healthy organizations don’t merely learn to adjust themselves to their current context or to challenges that lie just ahead; they create a capacity to learn and keep changing over time. This, we believe, is where ultimate competitive advantage lies.

I particularly liked the five frames in which the authors used to define the state at which organizations passed through. The Aspire, Assess, Architect, Act and Advance frames accurately capture the long road ahead for us. Looking critically at their chart we could best claim to “Aspire” at this time at People, Ideas & Objects.

This would also leave us looking to perform the next frame which would be to “Assess”. And it is here that we have much to be desired. The oil and gas industry is in no condition to address the markets demands for energy. Its output has been stagnant since 2005 and the sense of urgency to address the problem does not exist.

If not for the global recession, the demand for energy would far outstrip supply and the producers would be scrambling in a very tight market. Nonetheless, I think that day is still ahead of us, and soon. Before we can approach those levels of energy demand we will need to organize ourselves first. That organization begins here at People, Ideas & Objects with building the systems that identify and support the Joint Operating Committee, the key organizational construct of the innovative oil and gas producer.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XI (FM Part I)

We move now to the third marketplace module in the Preliminary Specification, the Financial Marketplace module. A lot has happened since the late spring / early summer of 2008 when I wrote this module. The financial marketplace has been shaken to its core and the implications of that shaking are still felt today. With many of the worlds financial markets continuing to be illiquid and nervous about certain situations. The capital and debt markets have been very negative towards the oil and gas industry with many of the independents being shut out of those markets. The rise of the Asian Joint Venture is a direct result of the inability to raise any money in the “normal” capital markets. I would expect to see further fall out as the Euro situation seems to be far from resolved, the U.S. is deeply indebted and demanding a lot of capital with only the quasi-government groups in Asia holding any significant amount of capital to invest.

The primary point that the Financial Marketplace module was making in 2008 was that there are competing interests and motivations in the industry in attempting to get things done. With different strategies being deployed by different partners within a Joint Operating Committee, is it any wonder that the financing of a project can ever fall into place. What the Financial Marketplace module proposes is that instead of the property being funded by several different company bankers, each taking a working interest share claim against the property. The Financial Marketplace module would see one bank fund the property in its entirety on behalf of the partners represented in the property. If that was the simpler solution. The attempt in the Financial Marketplace module was to offer a solution to the difficulty to funding properties when one or two of the participants were consistently falling behind in terms of their capabilities.

Today that may or may not be an objective or opportunity worth pursuing. However, I think that the freedom of having the attributes of the Financial Marketplace module still reside within the oil and gas market, and possibly even more as a result of the financial meltdown of 2008. Why? because the demand for capital will continue to be strong, and the supply will continue to be tight. In a capital intensive industry that’s going through the level of change that the oil and gas industry is going through. Having a system that employs a marketplace metaphor, which provides the participants with better information, may be more of a necessity.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part X (PLM Part V)

This post will represent my last kick at trying to sell the “user vision” as something more then just a technological toy or an interesting thing someone wanted but no one would ever use. I could certainly see how the user vision could be perceived as being something that would fall in either of those two classifications. However, if either of those were the results of what I thought the technology would be used for. I would be guilty of mis-communicating what I think the value in having the user vision implemented in the People, Ideas & Objects marketplace modules was.

To have the interface operational and people using it to browse as they do with web browsers today. Would be somewhat limiting in terms of the potential of what I see. With so much data and information available now and particularly in the future, how do we represent this data’s use in a manner that is usable to the user? The first requirement of the data is that it has to be reliable and have meaning. If the data and information that is contained within the user vision and marketplace modules are populated by public and private databases for well information, lease data, vendor and supplier inventory, scheduling calendars, and other unstructured data. Then producers, suppliers and others could conduct actionable events on that data and information.

When I say that information was populated into the system these should be live links that could include some of the information from a firms accounting systems. The point that I am attempting to make is that the information would be of value and therefore impute meaning into the “marketplace” modules where the “user vision” was employed. This would take the technology aspect of the device and make it the secondary reason for its use. The primary reason for the user visions use would be the business purpose of the user. The reason the user would continually return to use the marketplace would be the accuracy of the data and information that they find, and the interactions within the marketplace.

To develop a new systems for the oil and gas industry is an opportunity that I think is a once in a life time, maybe a once in a century opportunity. To think that we will use these systems in the manner that we use systems today underestimates the possibilities. The user interface is the area where the most innovation will occur in terms of how people will interact with larger volumes of data. These and other types of issues should be considered in the Preliminary Specification. I offer the “user vision” and these posts to initiate the discussion and expand the scope of what is possible in terms of the research that is undertaken. I thank you for your patience.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.