The Preliminary Specification Part LXXXIV (RM PartVII)

We begin now on our third pass through the Preliminary Specification. Starting once again with the Resource Marketplace module. The one area that I think there might be some confusion is the area where people earn their rights to Intellectual Property (IP). I think we have documented in fairly good detail how people can earn their rights in both the Resource Marketplace and Research & Capabilities modules of the Preliminary Specification. What I want to discuss in this blog post is, why is this a good thing for the producers?

As a review we noted that the big problems in oil and gas were not going to be solved until the incentive structures were aligned towards those that solved the problems. Today, in the service sector, the oil and gas industry exploits the lack of identifiable Intellectual Property (IP) by more or less ignoring it and passing it around to other firms in the service sector and its competitors. This lack of respect to those that developed the ideas has brought about a situation where the service providers have ceased to innovate or sponsor any new start-up firms as competition. The producers are the ones that are losing as they are unable to have their needs met by a diminishing capacity in terms of the service industry.

The situation has become so dire as their is little to no research being done and no start-up opportunities in the oil and gas service sector. The exact reverse of what you would think would be needed at a time like this. The oil and gas producers are reputed to be so difficult to work for that securing staff makes it all but impossible to start a firm, and even if you could start a firm, the producers would only look down their nose at you and scoff. Such is life in the rarefied air.

Nonetheless, whats in it for the producers to accept that the IP should pass from their hands to those that will take the time, energy, financial and intellectual risk to solve the producers problems? If we go back to one of the base assumptions that the People, Ideas & Objects software is operating under. We find that the competitive advantages of the producer firm are its physical assets and land base, and its earth science and engineering capabilities. Where in this competitive advantage does any product or service of the oil and gas service industry provide any value to the producer?

The means to acquire, explore, exploit and produce oil and gas reserves are how the producer makes money. That should be pretty obvious, but on the basis of how producers currently manage IP in the industry, they seem to think that drill bits and drill rigs are their future competitive advantages. What the producer needs is the most advanced and dynamic service industry marketplace that is innovative and productive and fiercely competitive in order for it to achieve its optimal productive output. What the producers should ask themselves is what the hell have they got themselves now?

A cultural change of this scope will be difficult to implement. Add this cultural change to the numerous other cultural changes that parallel this scope and you have an idea of the difficulty that lies ahead. These are the difficulties for the management of the producer firms themselves. They are the ones that have to change. And I can’t see that happening. Its a matter for Schumpeter’s creative destruction to sweep out the old and bring in the new. The new being of course the eleven module Preliminary Specification that deals with IP in the manner that will allow for the difficult problems to be solved. Until then we continue to write and grow.

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. 

The Preliminary Specification Part LXXXIII (General Part I)

We have now made two full passes through the Preliminary Specification generating 82 blog posts. Ultimately how many posts will be generated through this process is unknown at this time, however, I think there is significant value being generated for the user community. Therefore we will continue on for a while longer. I want to take some time today to talk about the general nature of the Preliminary Specification and the comprehensive nature of the solution. This I am sure is on every ones mind and these are my thoughts on the topic.

Whether we are talking about the possibility of a multi-billion dollar software development budget or the scope of the eleven modules, People, Ideas & Objects is big. Or dealing with multiple jurisdictions and many geographic regions adds a layer of complexity that is difficult to quantify. Making the application bigger, more complex and costlier then anything that has been contemplated before in oil and gas. It seems in many ways to be all things to all people.

It’s important however to remember that it is not all things to all people. One of the purposes of the Preliminary Specification is for the user community, of which the oil and gas producers are a critical member of, to determine the scope of the application in its initial commercial iteration.

What I am providing by initiating the discussion in these blog posts of the Preliminary Specification is to detail a vision of what is possible based on the research conducted to date. This vision could ultimately be used by the user community, however may not be available in its initial commercial release. That is for the user community to decide.

Lastly to address the scope of operations of the application I would ask, how successful have the alternatives been working out for you? That cobbling together that the bureaucracy has been doing should be ready for an upgrade soon, should it not? What’s the vision of your current ERP systems. The fact of the matter is that IT should never be about the technology. It should be about your business. And that is what we have focused on at People, Ideas & Objects.

The fact of the matter also remains that as soon as we recognize the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer the systems infrastructure has to be this way. Recognizing the partnership demands certain assumptions are given. Assumptions such as the role of operator will fade, organizational participation will increase, etc. As soon as you adopt the logic of building a system for the innovative oil and gas producer you end up with a suite of functionality that is the eleven module Preliminary Specification.

Can this be done? I don’t see any alternative. The ability of the industry to take what we have today in terms of its productive output and move it to a higher level of performance is a difficult task. What we have today is deceptively sophisticated and if we aren’t careful we could lose some of that capability without realizing it. Using a higher level of specialization and division of labor are a necessary part of the next level of performance. Does anyone believe that that level of performance will arise from spontaneous order and appear with out the role of software defining and supporting it?

We have a big job to do. Lets get it done. Tomorrow we start on our third layer of the onion, the third pass through the Preliminary 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.

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. 

The Preliminary Specification Part LXXXII (C&G Part X)

The innovative oil and gas producer is supported through the People, Ideas & Objects application modules. Their innovativeness is what the system was designed to achieve. This is based on the fundamental belief that the higher commodity prices are financing greater innovation and the most innovative producers will be the most profitable. However, as we know with innovation there is an amount of failure that is a natural part of the process. Therefore with greater innovative success there will be greater failure. This blog post deals with the governance of failure within the producer and Joint Operating Committee and how it is handled in the Compliance & Governance module of the Preliminary Specification.

The first thing we should do is define these failures in their proper context and call them what they are generally referred to as lessons learned. These will be documented in an area within the governance section of the Compliance & Governance module for review by those who are deemed authorized to review this information. As we discussed yesterday, a producer may have hundreds of interests in Joint Operating Committees located throughout the world. The ability to know what works and what doesn’t work, where the lessons are learned on a daily basis would be a valuable resource for a firm. Recall in the Knowledge & Learning module these lessons learned are being captured in each of the Joint Operating Committees. What the Compliance & Governance module does is aggregate these lessons learned from each of the JOC’s that the producer has an interest in and presents them in a database with all of the other JOC’s they have an interest in.

The point of this exercise is to try and avoid the simple problem of doing the same thing over and over and expecting different results. If the firm knows that a certain operation is unsuccessful then it should cease to conduct that operation. Very simple in concept, very difficult to implement. With each of the producers within a JOC having access to the lessons learned the more eyeballs that see these, the less they might occur. Nonetheless the lessons learned are somewhat after the fact in terms that the horse has escaped, it is worthwhile to know the information for others to avoid the same situation. I would think that it might be policy that a firm require their designates to the JOC report via the lessons learned interface all material deviations in operations. This would update the Knowledge & Learning for the JOC and the Compliance & Governance modules for each of the producer firms so that learning could be spread as far and as quickly as possible.

It was through our research that we discovered an interesting anomaly. Do these collaborations within the JOC create a leakage of proprietary knowledge and capability from one producer to the other? The question therefore becomes how is this proprietary information and capability deployed on an as needed basis? Professor Giovanni 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 sources and directions of competitive advantage. 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.

Within a JOC each producer is entitled to this information irrespective of the origins of the information. What is needed is the means to mitigate the losses that might occur by repeating the same mistakes on a corporate basis. The ability to learn from its mistakes should be a strong part of any corporate governance module and that is why it is included here in the People, Ideas & Objects Compliance & Governance module.

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.

The Preliminary Specification Part LXXXI (C&G Part IX)

Throughout our discussion of the Preliminary Specification we have been describing two distinct organizational structures. The producer firm and the Joint Operating Committee. Up until now we have focused the Compliance & Governance modules discussion on the producer firm. The manner that the Joint Operating Committee is operated through the People, Ideas & Objects software application modules is to identify and support the seven frameworks that the JOC naturally defines. The question therefore becomes how does the producer firm maintain governance over the producers working interest share of the Joint Operating Committee?

First we have the Military Command & Control Metaphor that is needed to be adopted across the organization so that producers within a Joint Operating Committee can pool their human resources, and impose a chain of command, control and governance over those resources. This pooling is done to offset the shortages of technical resources in the earth science and engineering fields that we have discussed here before. Since the pooling is comprised of resources from multiple producer firms the governance over those resources in the Joint Operating Committee is deferred to the Committee itself.

Each Joint Operating Committee is governed by their own agreement, operating and accounting procedure in most instances. These are the documents that are used to provide the operational means for decisions, policies and procedures to be used. The influence of one producer to skew the results of these decisions, policies and procedures may occur if they have a high percentage of the voting rights during the establishment of the agreement. Other then that the Joint Operating Committee will be left to operate based on the parameters that have been set and have minimal need for voting on these points in subsequent years. Where they will be active is in the budgets and the decisions as to the directions as to what and where the facilities should be developed. For this there are mechanisms to deal with the (non) participation of other producers and these will be documented by the JOC.

As we can see the voting rights the producer has in the Joint Operating Committee is the extent of their influence in the day to day business. Other then their determination of the amount of capital they will be expending the JOC will operate in a completely autonomous fashion based on the parameters that were agreed to by the founding producers. Yes there are voting rights and those may be significant in terms of their influence over the outcome but the producer organization and the JOC are two separate organizations for all intents and purposes.

Nonetheless, the need to ensure that the governance of the operations of the JOC are within the normal scope of operations are a responsibility of the management of each of the producer firms. How then can the governance of the producer be extended over the JOC in a manner that meets this criteria and respects that each producer in the JOC will have similar concerns.

When a producer adds up the number of JOC’s they have an interest in, it could easily number in the hundreds. The simple management of hundreds of properties operating on a semi-autonomous basis presents its own issues and opportunities. Documenting all of the activities that occur within the JOC is not the issue. This would be the easy part of putting an interface over the various data elements and presenting that within the governance section of the Compliance & Governance module. I think we have to get more sophisticated then that and start capturing the activities and actions that are occurring within the JOC’s. Every time there is a vote the results of the vote are reported through to the governance interface to each of the partners. Every time there is an election, a non-participation, capital expenditure decision, etc., its reported through to the governance interface to each of the partners. Then the users of the data have a summary of the actions that took place in those number of JOC’s and can determine if any of the actions require their further attention.

Having the actions of interests and the documentation that backs up the actions taken would provide a good starting point for each producer within a Joint Operating Committee. There the user could take further actions themselves if the governance of the JOC was in some way contrary to the policies and procedures of the producer firm.

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.

The Preliminary Specification Part LXXX (C&G Part VIII)

Throughout our discussion of the Preliminary Specification there has been a spirit of cooperation between the producers that participate in the Joint Operating Committee and the vendors in the service industry. Oil and gas remains and will always be a very competitive industry and this spirit does not detract from that competitiveness. The individual producer is ultimately focused on developing their land and asset base, and expanding their earth science and engineering capabilities for the financial gain of their shareholders. Control of the corporation, and hence its competitiveness, should be through the governance interface of the Compliance & Governance module.

This emphasis on governance has to consider 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 firm. Some may see governance and innovation being two opposing forces on the same scale. That may be but I don’t think they have to conflict. You can have good governance and remain highly innovative and competitive. For instance look at Apple. No one would doubt they run a tight ship. I would suggest that it would be difficult for me to see an innovative corporate mindset come about from a poorly governed process.

One of the research questions that we asked in the Preliminary Research Report was “can the scope and understanding of the process of innovation; be reduced to a quantifiable and replicable process?” The answer to that is difficult to quantify. First you need the appropriate organization, such as the Joint Operating Committee, and it has to be supported by the aligned frameworks of the producer, and then you need a service industry that is collaborating with the producers to develop the science and engineering products and services needed to develop the industry. So with that, that makes the answer to the research question an unqualified yes.

Having everything in place is no guarantee that innovation will arise. The people are a necessary element of the process. The best a producer can do is to provide the environment that will enable and enhance innovation and that is what People, Ideas & Objects Preliminary Specification is designed to do. In terms of governance of that process I think we have given the producer some unique tools to maintain control over their firm and the Joint Operating Committees that they participate in. These tools include the Military Command & Control Metaphor, the Work-Order system, the Purchase-Order system, etc.

The one area that we should maybe consider increasing the governance of is the capital allocation process. This is discussed in the Financial Marketplace module. By maintaining governance over the process and ensuring that it is followed would provide real value for the firm. Of particular concern would be to ensure that the process of reviewing all of the possible investment opportunities were reviewed. And secondly that all possible alternatives for investing in those alternatives was considered. Its the hard work of beating around the bush that will find the worthwhile investments.

Since we’re over at the Financial Marketplace module thinking of the governance that can be provided over the processes in that module. We might as well just pull up a chair and sit a while since that is a rather important module from a governance point of view. Whether it be banking or investing there will be many areas where we can establish enhanced governance over the processes under management in the Financial Marketplace module.

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.

The Preliminary Specification Part LXXIX (C&G Part VII)

We return now for our second pass through the Compliance & Governance module of the Preliminary Specification. We left the discussion during our first pass with an interesting question for industry to consider. I want to now pick up that question again and explore it a bit more and maybe give the idea a little more substance in the Preliminary Specification. The idea was, that with the future of work being more and more self directed, and motivated through performance, and at the same time with the work of computers automating more of the lower level work, how does compliance and governance fit in to this vision.

First of all I see another research project being started for the user community during the Preliminary Specification. To answer this question in one or two blog posts would be miraculous. The fact of the matter is that this is a question that needs to be answered on a go forward basis as a result of these forces coming into play. By asking the question now, and researching the question through the Preliminary Specification we can begin to solve the problem and build the software in the manner that resolves the problem for the oil and gas industry in the long term.

We will be highly successful in building the software described in the Preliminary Specification. And yet have a real mess on our hands in terms of compliance and governance if we don’t have an answer to this question built into that software. That is not what we are doing at People, Ideas & Objects. As much as everyone would like to ignore this difficult area of the business world it is a very necessary part of the business. And by saying that I know I have offended those people who are truly passionate about the business of compliance and governance. And its those people who will know how to implement these frameworks in the manner that solves the problem that we are discussing. As for every problem there are people who have a passion that will drive them to solve it. Such is the manner of user driven software developments.

I know enough of the topic that this can be done in a manner that makes the user aware of the compliance and governance requirements of their actions. Yet not mindlessly warn them with pop up windows every ten minutes of the day. Where decisions can be informed of the consequences before they are made as opposed to after the fact. Where information can be contextually provided as opposed to having being researched. The point of the matter is that the user interface should be a rich environment where the underlying intelligence of the system should be operating and providing much of these requirements. That is if we purposely set out to build it.

One of the other areas that we discussed in the first pass of the Compliance & Governance module was the scope of the regulations that the producer firm was now exposed to. A simple firm, well scratch that, there is no simple firm. A producer is required to meet quite a few different jurisdictions for a variety of different requirements. Staying on top of these requirements is becoming a full time job for many of the people within their organizations. If the trend is for more regulations then the demand for more people will increase, or alternatively, automation of the compliance and governance frameworks will become the 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.

The Preliminary Specification Part LXXVIII (A&S Part V)

When it comes to what we are given to work with in terms of ERP systems, they can leave much to be desired. If only we could have “this, that and the other thing”, our lives would be so much easier. It seems simple, however, the inertia necessary to overcome just “this” requires the fortitude and political skills of a saint. So we continue on in what can only be described as someones vision of hell. People, Ideas & Objects seeks to resolve some of the issues users are faced with in confronting the “this, that and the other thing” in systems by basing our development in the user community. Inherent in that offering is that we are not conflicted by the traditional constraints of software code and customers. That is to say we only earn our fees based on changes to the software code, we are therefore agents of change, not seeking to obstruct change.

The point that I am trying to make is that when it comes to having the user enhance the developments of the system. People, Ideas & Objects business is motivated from a business perspective to do so. That’s how we earn our revenue. Our point of view is that the software is in a state of constant improvement, driven by its users imagination and needs.

So when the time comes for a user to think that if they had “this, that and the other thing”. They will have a means to effect that change and have it fulfilled through the user community. But this blog post isn’t about that process of change specifically. Its about the stop gap measure that they may want to implement in the short term while they wait for the user community to implement their idea.

For that stop gap measure we turn to the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification. These modules should have the ability, since they have access to the data, to prepare ad-hoc reports that the user can develop for themselves. Granted most of these user developed reports won’t be ready for prime time, however for the purposes of the user they can fit the need in the short term.

The user generated reporting tool should be part of both the Performance Evaluation and Analytics & Statistics modules. And provide the user with a sophisticated graphical user interface to manipulate the data and develop queries. We’ve all seen these tools before and I’m not really suggesting anything new here. What I think is different however is the access to the data will be different. First that the volumes of data will be greater as detailed in our Technical Vision. And secondly that the Security & Access Control module will be providing the access to the data and information to the user based on their privileges.

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.

The Preliminary Specification Part LXXVII (A&S Part IV)

We return to the Analytics & Statistics and Performance Evaluation modules of the Preliminary Specification. This blog post will discuss the danger of these, and as such they will apply to both of these modules. I see this happen many times in oil and gas. Situations where the divestiture of assets is done without the full understanding of how the asset fits into the overall makeup of the organization. These types of situations happen when the performance mindset takes over all rational thought and the highest performance wins over every other consideration. This is the danger of these tools and as we move into a period of a sharper more accurate tool set, that danger becomes more prevalent.

There’s math, and then there’s strategy. The situation we see where the oil and gas firm that runs into difficulty financially, or operationally begins to rationalize their asset base. They think they need to raise money by selling some assets. So they naturally think they’ll sell some of their “mid-stream” assets. The gas plants, gathering and processing facilities that earn only a fee for service on the customer products processed. When looked at these assets from a financial performance point of view they don’t come close to even being on the right street where the ball park is on. Therefore they get sold for the high replacement cost that they would receive and the seller thinks they made a good deal. The fact of the matter is that the majority of the smaller producers may have been selling the C3+ products directly to you for fire sale prices because they have no capacity to deal with them. You being the only one in the area with processing facilities were able to negotiate a very good bargain and acquire the majority of the natural gas liquids in the area for literally the royalty costs. Now that the plant is sold those products are lost and that production is gone to the new owners of the plant.

The majority of the oil and gas producers that I have seen and studied take a while to fully understand what exactly is happening. What seems to be a jumble of activity for no apparent reason can, upon further study, become a symphony of brilliance assembled by someone of such great vision it can be truly breathtaking. Selling a gas plant out from the middle of this shows that the seller can’t see the vision and the assets are no longer going to perform as expected. Having tools like the Analytics & Statistics and Performance Evaluation modules in the hands of people who may not fully appreciate the vision of how the firm was built could have detrimental effects to the overall health of the firm.

If we go back to something we reviewed a while ago about the decision rights we review this quotation from Professor Richard Langlois.

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 9

In People, Ideas & Objects we have moved the knowledge to those with the decision rights, which reside with the Joint Operating Committee. And as opposed to contradicting ourselves, we find clarification of this issue in the following fact. The decision rights held by the Joint Operating Committee are the operational decision making authority. The strategic decision rights are held by each individual producer regarding each of their working interest shares. Therefore there is no risk that the property is going to be “harmed” in any material way by making a strategic decision in the Performance Evaluation module. It is beyond the scope of the authority of the Joint Operating Committee. It is fair to assume that the scope of the authority of the decision made through the Performance Evaluation module will be limited to the operational concerns, and be mitigated on the downside in the short term. That is to say any negative decision would be reversed as soon as it is realized.

I think it would be worthwhile to have a strategy review “attached” to each decision based on the Analytics & Statistics and Performance Evaluation based decision. That the decision has some analysis that is purely qualitative to counter the quantitative elements of the module. If this could be embedded into the module in some fashion that made the analysis for documentation purposes that would build value in these modules specifications.

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.

The Preliminary Specification Part LXXVI (K&L Part VII)

In this second pass through the Knowledge & Learning module we have focused on the ability of the Joint Operating Committee to mimic the attributes of the small oil and gas firm. And detail some of the interface that will be built in the Preliminary Specification for the learning aspects of the module. In this the last post for the second pass through the module, but certainly not the last to deal with the Knowledge & Learning module. I want to tie up some loose ends on the matter of learning, capabilities and knowledge.

In the end the choice of whether to use the market or to vertically integrate is a purely academic exercise. In oil and gas the choice to depend on the market is a given and there is little practical application in the alternatives. What our discussion has been about is more to learn from the discussion of how we can establish processes of learning from using the marketplace. In a period of rapid change with high levels of innovation we are going to be stretched in terms of our capabilities, knowledge and capacity to learn. These areas are the focus of the Research & Capabilities and Knowledge & Learning modules. As the business of the oil and gas business is managed through the interfaces of these modules, the People, Ideas & Objects application will need to identify and support the user through these difficult and somewhat costly processes. As noted in Langlois’ paper “Transaction Cost Economics in Real Time”;

How would learning proceed in a system of decentralized capabilities? As I have already suggested, progress would take place autonomously within the decentralized stages. There would be no need for integration unless a systemic innovation offering superior performance arrives on the scene. Indeed, as we have seen, fixed task boundaries and standardized connections between stages might make innovation difficult with the existing structure, requiring a kind of creative destruction. (Schumpeter, 1950). p. 121

and

Ultimately, the costs that lead to vertical integration are the (dynamic) transaction costs of persuading, negotiating with, coordinating among, and teaching outside suppliers in the face of economic change or innovation. (Teece, 1986). pp. 115 - 116

and

But in cases in which systemic coordination is not the issue, the market may turn out to be the superior learning engine because of its ability to generate rapid trial and error learning. p. 124

Tomorrow we will start our second pass through the Analytics & Statistics module.

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.

The Preliminary Specification Part LXXV (K&L Part VI)

In following up on yesterdays post, its important to point out the context of what the Joint Operating Committee will be learning. To do that we turn back to the definition of where the boundary of the firm and market is defined. The Joint Operating Committee must rely on the market for a majority of the work that is done in the field. I understand that this depends on the size of the facility and it will vary based on the types of operations and a variety of other conditions. We can all generally agree that a producer will not be conducting their own water hauling. The point being there is a fine line where the market is the optimal point where the JOC is operationally more efficient to rely on the market to provide the product or service. In oil and gas that definition, or market boundary, is usually that the market provides the majority of the work in the field.

In Professor Richard Langlois’ paper “Transaction Cost Economics in Real Time” he notes the following constraints will be imposed on the oil and gas producers in the JOC as a result of their dependence on the market.

The firms learning ability will depend on its internal organization. And the learning ability of the market will depend on technical and instructional factors, as well as on the learning abilities of the firms it comprises, considered both individually and as a system. The remainder of this paper is devoted to considering these two learning systems in slightly more detail. More specifically, it will set out some preliminary generalization about how the level of capabilities in the firm and the market - and the nature of change in those capabilities - effects the boundaries of the firm. pp. 111 - 112

What the contractors know, and what they think they know may be not relevant to your property. We discussed the fact that the general rule is that the operations being conducted are reduced to the understanding of the least experienced individual on the crew. How do we avoid the general rule being applied to any detailed operation. And how do we avoid what are called the motivational and cognitive paradoxes from becoming the “mindset” of the contractors on this or any Joint Operating Committee.

As background the motivational paradox arises from the production bias. That is, users lack the time to learn new applications due to the overwhelming concern for throughput. Their work is hampered by this lack of learning and consequently productivity suffers. The cognitive paradox has its root in the assimilation bias. People tend to apply what they already know in coping with new situations, and can be bound by the irrelevant and misleading similarities between the old and new situations. This can prevent people from learning and applying new and more effective solutions.

To add an extra layer of complexity to this process. Recall that we have changes that are being made in the marketplace as a result of the gap filling process seen in the Research & Capabilities module. This being an application of the division of labor and specialization process that deals with the overall organization and efficiencies of the industry that will have a direct effect on the makeup of the contractor and the learning processes in this module.

These issues become the concern of those users of the Knowledge & Learning module of the Preliminary Specification. In an innovative oil and gas industry change will be the constant variable that needs the attention of everyone concerned. Highlighting and prioritizing the main concern of the property will become what is commonplace today. And that is the concern. How do we maintain the awareness and attention that is necessary of everyone to learn what is needed.

Within Langlois’ paper I think we see the answer to the problem detailed within this blog post and noted yesterday in the review of Langlois’ definition of Dynamic Transaction Costs.

"F.A. Hayek (1945, p. 523) once wrote that 'economic problems arise always and only in consequence of change.' My argument is the flip-side: as change diminishes, economic problems recede. Specifically, as learning takes place within a stable environment, transaction costs diminish. As Carl Dahlman (1979) points out, all transaction costs are at base information costs. And, with time and learning, contracting parties gain information about one another's behavior. More importantly, the transacting parties will with time develop or hit upon institutional arrangements that mitigate the sources of transaction costs." p. 104

The answer is, there will be large, in comparison to what is incurred today, Dynamic Transaction Costs expended by the Joint Operating Committee through the Knowledge & Learning module of the Preliminary Specification. This is a strategic necessity whose alternative is for the producers to move all of the operations in-house and manage them internally. Not a viable alternative. If we identify what these Dynamic Transaction Costs are in the process of incurring them and record them as such, then we can deal with them and learn from them. That may be the first step in learning what to do with the learning costs in this high change and high cost era of oil and gas.

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.