The Preliminary Specification Part CXXVII (R&C Part XXII)

People, Ideas & Objects software application modules enable the producer firms and Joint Operating Committees to focus on their core competitive advantages. These being the land & asset base, and the earth science and engineering capabilities of the innovative oil and gas producer. The Research & Capabilities module of the Preliminary Specification is the key module for the innovative producer to focus on their core competitive advantages. We have been discussing the “Planning & Deployment Interface” of the module and today we want to discuss how the producer maintains the pace of change in the underlying sciences and technologies.

The simple answer to this question is that the producer and particularly the Joint Operating Committee will not have the distraction of the long term acquisition of scientific and engineering research affect the day to day implementation of the knowledge of the firm or Joint Operating Committee. Recall at the beginning of this modules review we defined the time horizons for the Research & Capabilities module, and the Knowledge & Learning module, as the long term and short term respectively. The Research & Capabilities is about the acquisition of capabilities and their documentation, and the Knowledge & Learning is about their implementation. The fact that there is a “Planning & Deployment Interface” in the Research & Capabilities module may lead to some confusion, however, it is there as there are times in which the producer firm needs to implement the capabilities that it has for its sole benefit.

This separation of the time horizon for the Research & Capabilities to take the long term perspective, provides the appropriate mindset for it to focus on the overall development of the earth science and engineering disciplines. The ability of the producer to match the pace of change in the underlying sciences and mapping the necessary changes within the “Capabilities Interface” will communicate the changes through to the organization to the various Joint Operating Committees that need that information on those capabilities. These changes and the communication of the changes to the appropriate people in a timely fashion will provide a means of increased performance for the producer and JOC. Providing a foundation for the producer to further build and implement their competitive advantages of earth science and engineering capabilities.

Restating for clarity purposes. That is how the Research & Capabilities module enables the producers to develop, implement and integrate advanced capabilities within their organization. The research undertaken by the firm should not interrupt the day to day of the operation. However, when the research augments the firms capabilities the “Capabilities Interface” is updated for that information. The capabilities as they are listed in the“Capabilities Interface” will be selected in the “Planning & Deployment Interface”. With these newly augmented capabilities, they will be deployed through to the Knowledge & Learning module, or in the case of work being done by the sole producer the Research & Capabilities module where they can be used and reused by the organization. If the research conducted by the firm is unresolved or undetermined in its conclusion then it would not belong in the “Capabilities Interface”. If it remained unresolved or undetermined then it would indicate that further work was required and therefore remain open in a Work Order for completion or resolution.

Today’s post attempts to clarify the role that Research takes in the Research & Capabilities module and how these advanced capabilities are updated and communicated through to the rest of the organization, which is predominately the Joint Operating Committee. Essentially there are perspectives of the information that need to be enforced. The Research & Capabilities take the long term perspective. The Knowledge & Learning takes the current perspective. Research that is incomplete remains open in a Work Order until resolution. Completed research augments the “Capabilities Interface” which ultimately updates the “Planning & Deployment Interface” in both the producer firm and Joint Operating Committee.

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 CXXVI (R&C Part XXI)

We continue on with the “Planning & Deployment Interface” in the Research & Capabilities module of the Preliminary Specification. This interface would also be available to the Joint Operating Committee through the Knowledge & Learning module. Today I want to discuss the general operation of the interface and how users will interact with the information contained within it.

Who ever it is that implements the project through the “Planning & Deployment Interface” will be selecting the various capabilities documents from the “Capabilities Interface”. When they do this they will be able to ensure that the capabilities they select reflect the “final” status necessary for the project. If there is further documentation that needs to take place or more work is needed to advance the state of the capabilities that are selected, these attributes can be added. This would have the effect of keeping the documentation up to the state of the capability within the firm or the Joint Operating Committee. Recipients of the information, once the “Planning & Deployment Interface” was processed, would be able to compare the capabilities information they received with the previous version they viewed, and determine quickly how the capability has changed from that previous version. Then they could assess what impact and consideration that change would have on their portion of the task and if they were to have any issues as a result.

Just as with the selection of the various capabilities the resource selection would have any updated information regarding the capabilities of each individual. If the completion of a course or program, the successful implementation of other capabilities etc would be available to the user who initiates the “Planning & Deployment Interface”. This information could be incredibly detailed and include the contributions that the individual made to the “Lessons Learned Interface” in both the Knowledge & Learning, and Research & Capabilities modules. Their performance reviews from previous tasks and any comments about the role they undertook in previous assignments. This information should be available for in-house staff, resources that are pooled through the various Joint Operating Committees that a firm participates with, any suppliers and vendors or contractors that the firm or JOC may have hired to work on the task.

The timing of the project and its completion are somewhat flexible based on the number of resources that are put on the project. This makes for a bit of a paradox, as if the team gets too large you lose the cohesiveness that the team needs to rely upon. Understanding that the people that are resourced into these tasks are probably assigned to multiple projects, and their participation is somewhat constrained by these limits, the time line may reach beyond what is initially the target.

Lastly the “Planning & Deployment Interface” has been about the known knowns to this point. There are a variety of known unknowns and unknown unknowns. To document these, if possible, is the role of the team members once the project interface has been processed and assigned. Recall that Professor Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.” A section of the interface should be set aside where the team can collaborate on these points and provide some innovative solutions for the producer or JOC.

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? I think the development of the “Planning & Deployment Interface” as described here would provide the producer and Joint Operating Committee with these sought after abilities.

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 CXXV (R&C Part XX)

If all that we were to do with the capabilities aspect of the Research & Capabilities module of the Preliminary Specification. Was to document the capabilities as in the “Capabilities Interface” then we would be wasting a lot of people’s time. The purpose in documenting the capabilities is so that we can deploy them, and that brings in the “Planning & Deployment Interface” which is the topic of discussion in today’s post.

Ideally I see the ability of a firm to deploy their capabilities as a key competitive advantage. The organization of that competitive advantage will be the focus of the management of the firm. It should also be noted that there is a similar “Planning & Deployment Interface” in the Knowledge & Learning module for the Joint Operating Committee. The analogy that I would like to use and develop is directly applicable to the game of American football. Where the coach can call in a play and the team is able to execute that play based on their known capabilities, roll and skills on the team. I want to draw a direct analogy for the person who plans and calls on the capabilities of the firm or JOC in the “Planning & Deployment Interface”.

First we need to bring in the Military Command & Control Metaphor and understand that the role of the individual, as designated in that structure becomes a critical part of the planning and deployment of the firm or JOC’s capabilities. There can be only one Quarter Back and you need many Down Lineman. The filling of the various roles in order to take the actions that are needed is as important as the capabilities themselves. Please review the Military Command & Control Metaphor if you have recently started reading this blog. The MCCM imposes a chain of command across the multiple producers represented in the JOC, or firm and enables them to operate the pooled resources of these firms.

The “Planning & Deployment Interface” will take the three critical aspects of the firm / JOC and arrange them within a web like interface for the user to develop the actions they desire. The three critical aspects are the people represented in the MCCM, the capabilities and the time frame. Having selected the personnel that you want to execute the action that you have in mind, their available time becomes known to the interface from each individuals calendar. Selecting the capabilities from the Research & Capabilities, or Knowledge & Learning, module is then drawn into the interface. From there the user is able to “process” the information and based on the variables given determine when the work would be able to be completed. Then they may select additional resources to fill deficiencies in areas where the capabilities suggest they need more resources, conduct more studies to determine certain unknowns or proceed with the project.

Upon proceeding with the project the people who were selected by the user in the “Planning & Deployment Interface” are given the job to do. They are provided with an understanding of what and how and who will be involved in completing the project. Not that it should be a simple matter of execution, but they should at this time have everything provided within the “package” they receive from the “Planning & Deployment Interface”. That package should be comprehensive and detailed such that it is all that they need to be able to focus on the successful completion of the task. This is how I see the interface operating in the Research & Capabilities module.

The quality of the documentation of the capabilities will be the determining factor in how successful the project will be. If the detail contained in the “Capabilities Interface” is of rich media, detailed and provides the user with a good understanding of what is required then the communication from what is expected and what is understood is not at variance. The people will be able to see clearly what it is that the project is about and how they are expected to complete the task.

The innovative and capable oil and gas producer is in need of the ability to document and deploy their capabilities in an efficient and effective manner. Here is a way in which the deployment is planned and executed with an understanding or “meeting of the minds” based on the quality of the documentation in the “Capabilities Interface”. It being not just a repository of data that might be used some day by some one. But a living source of quality information in which the producer or JOC depends on to make sure that the execution of their projects are successful.

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 CXXIV (R&C Part XIX)

Today I want to take a look at Professor Giovanni Dosi’s “key factors” in the context of the scenario that we used recently during our review of the Partnership Accounting module. Recall that we had a number of producers who were joining together through the Work Order to participate in an engineering study. This was discussed in the Partnership Accounting module to highlight the manner in which it eliminated the logistical accounting difficulties that impede the development of these working groups. Today I want to discuss how the efforts of that working group are added to the capabilities of the producer and are managed in the Research & Capabilities module of the Preliminary Specification.

Upon completion of the working group the producer firm will have a unit of knowledge that has been developed from the efforts of the group. Professor Carliss Baldwin provides us with some clarity here with her “knowledge begets capabilities, and capabilities beget action” comment. What is needed is for the producer to have a central repository for the knowledge that is accumulated through the various working groups and other “key factors” in which they acquire that knowledge. This will be called the Capabilities Interface in the Research & Capabilities module and will detail the source of the knowledge, the key factor, how it was acquired, and what it involves will be captured within a wiki styled interface. This interface is also sorted by geological zone and populated to the Knowledge & Learning module for the Joint Operating Committee, based on what geological zones they produce from. Organizing a firms and Joint Operating Committees capabilities is the beginning of developing, deploying and effectively managing them.

Within any module of the People, Ideas & Objects application the user will be able to right click their mouse and select from a sub-menu of actions. These actions will include the ability to begin a Work Order, raise an AFE, prepare a Joint Venture Agreement etc. If the user can take action on the capabilities listed within the “Capabilities Interface” then we have achieved the process that Professor Baldwin states is necessary. Having this information centralized for the producer, and the specific information for the Joint Operating Committee helps to concentrate the knowledge within one location within the firm. There will be little confusion as to where to find the answer to a specific question. When the user finds what they are looking for, the detail of the knowledge or capability should be specific enough as to define a process as to how it is implemented. Understanding that knowledge is never static, the ability to update the information with lessons learned would be part of the users responsibility. Recall this update from lessons learned is also done for the Joint Operating Committee in the Knowledge & Learning module.

The ability to annotate and reference the material within the wiki would make this more usable. However, with the tools that are available today, such as search, make the information more valuable. What is truly valuable is the types of tools that will be available tomorrow. We are beginning to see some of these tools enter the consumer space with the iPhone’s SIRI virtual assistant. The first step however will be to acquire the data and make it actionable through the ERP system of People, Ideas & Objects. Then we will be able to add these tools easily as they become available in the future.

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 CXXIII (R&C Part XVIII)

In today’s post we want to document the last of the key factors that Professor Giovanni Dosi states are necessary to support innovation. And then begin a discussion on these key factors and how they are implemented in the Research & Capabilities module of the Preliminary Specification.

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

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

Its only logical that innovation will spring from advanced markets with labor mobility, legal protection and capital markets. Its one thing to have these facilities provided, its another to have them aligned within the organization. With People, Ideas & Objects we are aligning the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee with the compliance and governance frameworks of the hierarchy. This alignment permits the producer firm and the Joint Operating Committee to attain greater speed, innovation and accountability as a result.

What these key factors reflect is that the innovative oil and gas producer must first of all be capable. Innovation leverages the capabilities of the service industry, the producer marketplace and the greater market makeup. For the producer to attain their highest level of capabilities is the objective of the Research & Capabilities module. Each producer will be able to attain their own specific level of capabilities, and that level will be dependent on these key factors. Not all producers are built the same. The ability therefore to achieve state of the art capabilities and highly innovative practices are not something that are at risk in terms of being “copied” by other producers. Therefore a producers willingness to participate in the collaborative environment created in the Research & Capabilities module would not risk any proprietary competitive advantage. On the contrary, based on these key factors, non-participation would limit the competitive advantage.

This environment is the polar opposite of the manner in which the industry operates today. Certainly there are high levels of joint ventures in operation, however, those are designed to mitigate financial risk more then anything else. And I am not suggesting a different posture be taken in terms of the risk profile of the industry. Only that a more open collaborative earth science and engineering level of discussion and participation is necessary for the industry to move to the next level of performance. One that enables the key factors that have been discussed in these last three posts, interact with the highly aligned and innovative oil and gas 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. 

The Preliminary Specification Part CXXII (R&C Part XVII)

Yesterday we discussed the need to have the service and oil & gas industries develop their overall capabilities in order for the producer to be able to advance theirs. That these industry wide capabilities have an enabling or constraining effect on each of the individual producers own ability to develop their capabilities, and hence innovations. Today we want to discuss the other aspects of how the producers capabilities are enhanced, and the various elements within the Research & Capabilities module of the Preliminary Specification that enable these to develop.

The second key factor that Professor Giovanni Dosi defines as necessary is as follows.

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

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

Again these only make sense in terms of being critical to enabling the capabilities of the producer firm. The question becomes is how does the Research & Capabilities module and the Preliminary Specification specifically deal with these key factors to enhance innovation?

The first key factor that I want to address is the “supply of technical capabilities, skills, engineers etc.” That raising the quantity and quality of the earth science and engineering technical resources of the industry is possibly one of the three top issues of the industry. How does the Research & Capabilities module specifically increase the supply of these resources? As we have stated here many times the need to rely on the standard economic tools of an enhanced division of labor and specialization are the keys to solving this problem.

If we look at the way the industry is structured today, with each producer building the capabilities needed to address every possible contingency within their organization. The overbuilding of capabilities is the result and this surplus capacity is left unused and unusable. Each producer pursuing the same strategy leaves a large surplus capacity that is unused and unusable on an industry wide basis. The pooling concept that People, Ideas & Objects has developed within the Preliminary Specification. Where producers of a Joint Operating Committee are able to pool their technical resources to meet the properties demands. Eliminates the overbuilding of capacities in each of the producer firms, and enables the producers to deploy any surplus capacity.

That’s the first element of the division of labor and specialization that is inherent in the Preliminary Specification. The second element deals directly with the ability to organize the technical resources in a manner that deals with how the “bread and butter” geology and engineering is done in the industry. With a dedicated software development capability such as that which is People, Ideas & Objects competitive offering, the ability to organize new service based offerings to meet the demands of the industries bread and butter earth science and engineering demands would now be possible. The expansion of the division of labor and specialization will therefore increase the throughput of the industry from the same volume of resources, and also enhance the quality of the resources. As we have stated many times here at People, Ideas & Objects, software will define and support the future division of labor and specialization.

Regarding the “facilities for the communication of knowledge” as a key factor of innovation. The Research & Capabilities and the Knowledge & Learning modules are collaborative information systems that are “industry-wide” in their implementation. A review of the many interfaces that were mentioned in yesterday’s post shows that the development and sharing of knowledge, which are critical for the development of the individual producers capabilities and innovativeness, are systemic throughout this module.

Lastly I would ask the user community if we need to develop an interface in the Research & Capabilities module that allows the producer to interact with the academic and research areas of the earth science and engineering disciplines. It would seem to me to be a worthwhile addition however, the user community may have some specific ideas on what should be included.

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 CXXI (R&C Part XVI)

It’s only reasonable that the producer firm is going to approach the operation of some technically difficult task with the appropriate capabilities. Innovation requires that the capabilities of the producer be the base on which the innovations can leverage. What Professor Dosi has defined in his research is the key factors that innovation requires. Over the next few days we will discuss these key factors and how they are integrated within the Research & Capabilities and other modules of the Preliminary Specification.

One housekeeping duty is to note that there is a “Capabilities & Stimuli” interface in the Petroleum Lease Marketplace module. This documents the contractual obligations that the producer is required to meet in terms of commitments to the various Joint Operating Committees that the producer is a participant in. And to leverage the working interest partners capabilities that are likewise legally committed. This interface is placed in the Petroleum Lease Marketplace module to document the legal obligations that are contractually defined. This interface should also be recreated in the Research & Capabilities module.

In today’s post we will deal with the first of the three key factors of innovation, Professor Dosi notes:

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

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

What you are capable of is wholly dependent on what has been purposely developed within your firm. These capabilities have developed over time and are able to be deployed repeatedly. As time passes further capabilities are developed and the firm becomes more capable through a variety of different means. The ability of the firm to develop these capabilities is limited by what the oil and gas service industry is capable of providing. If they have only x number of rigs available, then only so much work will be done. And if the rigs are only able to drill shallow wells then the science of the producer will be constrained by the capabilities of the service industry. Furthermore, if the producer is a state of the art earth science and engineering wonder in a sea of producers who are barely able to successfully drill shallow wells, then the state of the art producer is reduced to the same level of the others. The marketplace of the producers in terms of their technical resources and their capabilities have an enabling and constraining limit on what the producer is capable of. Lastly innovation is leveraged from this base.

The question therefore becomes how do we broaden the base of not only the producer but the service and oil & gas industries. Recall how the Research & Capabilities module has a "Ideas Marketplace" blog like interface where members of the industries can post ideas of products and services that might be of interest to the producer firms. Producers may then act to support these ideas with funding and support to develop the idea into a product or service to augment their capabilities. Recall the "Supplier Collaborative Interface" in the Resource Marketplace module that enables the industry as a whole to benefit from the lessons learned by each producer. The "Gap Filing interface" where the producer can anonymously publish where they see gaps in the service industries offerings. Enabling the service providers to prepare new products and services based on a further defined division of labor and specialization. Or how the information within the Research & Capabilities interface is organized on the basis of geological zone so that only those pertinent zones are populated to the individual Joint Operating Committees through the Knowledge & Learning module.

Recently in the Partnership Accounting module we discussed the accounting attributes of the Work Order system in forming working groups amongst industry participants. These could be informal working groups formed to study some geology or engineering situation among interested producers. The ability to strike these groups, participate in them and develop further capabilities as a result of these studies is a critical aspect of how the producers will develop their capabilities. Since the costs and the results are shared the industry as a whole advances. Leaving the producer open to further potential innovations. I see this as an area that will explode in terms of activity, if, the accounting logistics and bureaucratic nightmare that they create can be dealt with in the manner that the Partnership Accounting module does.

We will continue tomorrow with further discussion of these points.

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 CXX (R&C Part XV)

Now we begin our third pass through the Research & Capabilities module of the Preliminary Specification. This will focus on innovation which involves the capabilities of the firm. In the fourth pass through the Preliminary Specification we will be focusing on capabilities. The Research & Capabilities application module is unique in that it provides the producer firm with the ability to document, develop, and deploy their earth science and engineering capabilities. We will be briefly touching on some of the capabilities areas in this the third pass, and will do a deep dive in the fourth.

It is through Professor Giovanni Dosi’s paper “Sources, Procedures and Microeconomic Effects of Innovation” that we will view this module, and if you have the time it might be worthwhile to review the Research & Capabilities module as background for these blog posts.

A couple of things that jump out at me in the Research & Capabilities module are the division of labor between computers and humans. Formulating ideas, making decisions and collaborating are the activities that are captured in this module. Leaving the mundane transaction and data management tasks to the computers. This I think an appropriate division of labor, I wonder at times what SAP’s thinking is on this. Another aspect that caught my eye was Professor Richard Langlois comment that we are “moving the knowledge to those with the decision rights” as being the primary process that the module captures. And lastly, that a user can right click at any time within the module and initiate any standard ERP type of action on anything in the module. This being an extension of Professor Carliss Baldwins research that notes “knowledge begets capabilities and capabilities beget actions”.

To the topic of innovation, Professor Dosi’s article discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. The investment in science and technologies is with the implicit expectation of a return on these investments, but also, to provide the firm with additional structural competitive advantages by moving their products costs and / or capabilities beyond that of the competition. Professor Dosi note:

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

We discussed only a few days ago that the Accounting Voucher would enable the producer to charge the various joint accounts with the costs of their technical resources with the implicit assumption that they would generate a return on the investment in the firms capabilities. We also discussed the differences between what is acceptable practice today (with overhead allowances) and the different positions that some might take on the topic. However, I think Professor Dosi’s point here has to be taken as the key criteria as to the direction the industry takes on the issue. You are investing to provide the firm with additional structural competitive advantages by moving their products costs and / or capabilities beyond that of the competitions. The ability to sustain the state of the art oil and gas capabilities on the basis of what a producer earns from oil and gas production is a direct result of those capabilities, however, shouldn’t the costs of those capabilities earn a return above and beyond what the oil and gas production provides?

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 CXIX (AV Part XI)

One area that has been difficult for the oil and gas producer to deal with is the volatile energy prices. With the costs of production and reserve replacement increasing and the reserve depletion on such a rapid pace, the decline in energy prices can have a material effect on the value captured from a field. With every producer producing at capacity, this risk of price declines comes into play more frequently then maybe needs to be realized. This blog post asks the question, what if, there was agreement in the Petroleum Lease Marketplace and implementation in the Accounting Vouchers Material Balance Report of the Preliminary Specification, to limit the production at certain thresholds based on predetermined commodity prices?

We can accurately tell what the costs of reserves and production costs are and there are many times when these exceed the prices that are received in the marketplace. The North American natural gas marketplace is a very good example of this situation. Selling at a loss may fuel the short term cash flow situation however, it as at the long term expense of reserve replacements. In a highly innovative oil and gas marketplace, the costs of innovation are being funded by the commodity prices. However, these costs may exceed the temporary fluctuations in the market prices for the commodities. Is it wise for the producer to continue to produce at capacity?

What if the agreement that governs the Joint Operating Committee has the partnership agreeing to a reduction of production by 15% when the price of the commodity drops below x value. And what if the agreement also reduces the production by 25% when the production prices drop below y value. These situations would help to mitigate the loss of earnings on the reserves and not materially affect the cash flow of the operation. The global implications of many producers implementing this type of price based production profile would put a floor on the commodity prices. A floor based on the marginal costs of reserve replacement.

The implementation of the production decreases would be triggered in the Petroleum Lease Marketplace and signaled to the Material Balance Report. One area that we have not yet discussed in detail is the field data capture that is implicit in the Material Balance Report. This signal from the Petroleum Lease Marketplace module would then choke back the production to the 85% threshold when the prices realized are below the level set in the trigger.

Selling at a loss is a fools game. The political issues surrounding the choking back of production are something that might make some wince. However, the reality is that the costs of production and reserve replacement are escalating and the volatility in the commodity prices only seems to becoming more prevalent. With shale gas costs in North America being as high as they are, who would contemplate producing at these prices? In many ways we are our own worst enemies.

This scenario of price driven production adjustments will be part of the Preliminary Specification. If producers decide to use it, it will be there choice. I think it is necessary with the situation in the energy market that the producer has some protection of their investment from the volatility and political influences of the commodity marketplace.

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 CXVIII (AV Part X)

The interactions between the Accounting Voucher and the Partnership Accounting modules of the Preliminary Specification are naturally quite significant. They both being accounting modules, it is natural that they have high levels of integration. The Accounting Voucher is unique in that it brings to the producer the ability to design transactions and the Material Balance Report. These are not innovations that the producer will use to become more innovative but are provided to ensure that the innovative producers processes are actively defined and supported through out the People, Ideas & Objects application modules.  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. The Accounting Voucher and Partnership Accounting modules provide that organizational flexibility.

The manner in which these two modules operate is as follows. The Accounting Voucher captures the transactions. Partnership Accounting reports on the transactions. Accounting Vouchers remain open for one accounting period and are subject to the same closing process that is familiar and traditional in the accounting world.

We noted in the Partnership Accounting module how the Work Order enabled the producer with the ability to form and participate in working groups. This flexibility is what is sought in these accounting modules. Elimination of the bureaucratic inertia that impedes these activities today makes these modules critical to a producers innovation as much as the Research & Capabilities or Knowledge & Learning modules do.

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. It is People, Ideas & Objects assertion that the “different incentive structures” and “different opportunities” are facilitated or constrained by the administrative ease in which the producer operates.

The same can be stated for the Material Balance Report. If the producer is confident that the deal that was conceived is accurately captured in the Accounting Voucher. And the operation is therefore also reporting a substantial profit. Then they know that their innovations are working, their systems are working and the alignment of the legal, financial, operational decision making, cultural, communication, innovation, strategic, compliance and governance frameworks is achieved.

This will be the last post on the Accounting Voucher during our third pass. We will be skipping over the Security & Access Control module as it is not directly involved in the producers innovation. Recall that our third pass is focused on innovation and therefore we will be moving to the Research & Capabilities module of 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.