The Preliminary Specification Part CLXXX (RM Part XXXIV)

One of the conclusions in the Preliminary Research Report was that the oil and gas industry was transitioning from a “banking” mentality of earning guaranteed returns on investments, one that was based on the cheap energy era where financial survival was the key to success. To a scientifically based industry where innovating on the earth science and engineering disciplines would become the determining factors in a producers survival and success. Today those two cultures are clashing as the relics of the cheap energy era attempt to restructure to compete in the scientific frontier. Adding to this transition is the bureaucracies last ditch attempt to assert its purpose in life. Is it any wonder that a producer finds any oil and gas?

We have been discussing the capabilities of the producer, the Joint Operating Committee and the service industry and how the Resource Marketplace module of the Preliminary Specification works to coordinate these. We have put the responsibility for the service industries market supporting institutions squarely on the producers. The reasons for that are for the obvious ones in that they are the primary benefactors, and they are the primary industry that collects the revenues that ultimately will be used to support the service industry. It is therefore necessary that the oil and gas producers use this money to encourage this market to grow and develop as thick and as responsive as possible. The oil and gas producers are the ones who will benefit from the innovative and competitive service industry. What is known about the future of the oil and gas producer is there are high levels of uncertainty. Developing thick markets in the service industry will mitigate some of this uncertainty. From Professor Richard Langlois paper “Economic Institutions and the Boundaries of the Firm: The Case of Business Groups.”

The second hypothesis, which has resonances at least as far back as Gerschenkron’s famous “backwardness” thesis (Gerschenkron 1962), is that the way an economy responds to the problems of coordinating economic development depends not only on its own institutions and capabilities but also on institutions and capabilities elsewhere. It depends not only on an economy’s own history but on the history of other economies as well. The force of this observation is that an economy at the frontier of economic development (however we care to define that) is likely to respond to the coordination problem differently than an economy lagging behind that frontier. Specifically, an economy at the frontier is arguably more likely to rely on decentralized modes of coordination. This is so because uncertainty is greater at the frontier — uncertainty about technology, organizational form, market direction. p. 18

And what we need are people thinking there way through the uncertainty. I have been a strong critic of the “best practices” phenomenon that has developed over the past few years. Copying others “best practices” reminds me of this quote from Professor Langlois paper.

Indeed, traditional command-style economies, such as that of the former USSR, appear to be able only to mimic those tasks that market economies have performed before; they are unable to set up and execute original tasks. The [Soviet] system has been particularly effective when the central priorities involve catching up, for then the problems of knowing what to do, when and how to do it, and whether it was properly done, are solved by reference to a working model, by exploiting what Gerschenkron . . . called the “advantage of backwardness.” (Ericson, 1991, p. 21).

Best practices reflect the staleness of the methods of the bureaucracy. If not for the increase in commodity prices over the past few years, you wonder what they would have relied upon for earnings.

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXIX (RM Part XXXIII)

In today’s post I want to revisit the “Gap Filling Interface” of the Resource Marketplace and add some of the elements of our recent discussion of the service industry. It would be fair to state that the service, and the oil and gas industries have remained somewhat static in their makeup of how they are organized. Standardization and the division of labor seem to have stopped around the last SAP integration.

Management of the oil and gas bureaucracies have reigned over the service sector with the grace of a Roman Emperor. Putting thumbs up or down on an innovation on the basis that they have immediate need for it or not, and expecting solutions to spontaneously exist when problems do arise. This entire process of development has devolved to the point where little is being done and ranks on par with the oil and gas companies suggesting to the service industry to "let them eat cake." No money is provided to research new products, only tried and tested products and services are accepted, and only “large” firms are used. And producers actually complain about cost overruns.

As Harvey Leibenstein long ago pointed out, economic growth is always a process of “gap-filling,” that is, of supplying the missing links in the evolving chain of complementary inputs to production. Especially in a developed and well functioning economy, one with what I like to call market-supporting institutions (Langlois 2003), such gap-filling can often proceed in important part through the “spontaneous” action of more-or-less anonymous markets. p. 6

In the Resource Marketplace module of the Preliminary Specification we have developed the “Gap Filing Interface”. A collaborative tool that users can input where they see a gap that needs filling within their firm, their Joint Operating Committee, a service provider or any where within the oil and gas and service industries. It is the expression of a well articulated need. Providers can then review the interface to determine if there is a service or product demanded that is similar to theirs that they can configure and provide to the firm, Joint Operating Committee or service provider. The problem that we have today is that the problem may be in Shanghai and the solution to it is sitting in Midland, Texas. With such large distances between problems and solutions we need to ensure that we have the means to focus the expression of the need in an appropriate forum where the problem and solution can find each other. That is the “Gap Filling Interface”.

The situation is similar when we look at it from the other perspective. Those that may have developed a solution to a gap that want to market it to the broader market can post it to the “Gap Filling Interface” for those to see. Again with the problems and their solutions being separated by geography it is necessary to build a specific forum to capture the attention of people for this purpose.

Ideally, with the oil and gas producers providing the kinds of industry supporting institutions that we have been discussing in the past number of blog posts. The service industry will have developed thick markets where the ability, and capability, to fill these “gaps” both in the service sector and the producer firms themselves will be immediate. That is to say, should be the objective in terms of the capabilities we should expect from the markets that we are seeking to develop.

The underlying assumption, normally unspoken, is that relevant background institutions — things like respect for private property, contract law, courts — are all in place. Whatever transaction costs then arise are thus the result of properties inherent in “the market” itself, not of inadequacies in background institutions. There is generally a tacit factual or historical assumption as well: that the relevant markets exist thickly or would come into existence instantaneously if called upon. p. 3

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXVIII (RM Part XXXII)

We have been discussing Industrial Districts as an ideal way to configure the Resource Marketplace of the suppliers and vendors. An innovative oil and gas industry has to depend on an innovative and high performing service industry. And that can only happen with the deliberate and careful building of the necessary industry supporting infrastructure from the oil and gas producers. So much of the toxic environment that exists today between the two industries is as a result of the oil and gas producers blaming the cost overruns on the vendors in the field operations. This environment is fully 180 degrees from where the oil and gas producer needs to have these relationships, and it is the responsibility of the producer to get the relationships back in line. It will be through the development of the Resource Marketplace module in the Preliminary Specification that the service industry will be able to see the legitimacy of the producers intent to build the industry supporting infrastructure necessary for innovation to develop.

As much as we have discussed the role that Adam Smith’s theories of specialization and division of labor will have at the producer level, they will have similar impact in the field. To help these companies to better understand these principles would be the Community of Independent Service Providers who could consult to these firms and help them develop their organizations. From Professor Richard Langlois’ paper “Innovation Process and Industrial Districts”.

Because of their structure, industrial districts offer important benefits in innovation processes. For one thing, the high levels of differentiation and specialization allow firms, in the Smithian fashion, to focus on aspects of the supply chain in which they are especially competent. p. 5

To me its intuitive what Professor Langlois is talking about. In a hostile working environment its work to rule. No one volunteers anything, and everyone just does their job so they don’t get fired. The fact that the well didn’t find any commercial gas isn’t any ones specific problem. On the other hand, when everyone is pulling together as a team...

Strong ties (Granovetter, 1973) among workers, including managers, can increase the amount of information available to firms and the readiness of people to share what they know when relationships gain a dimension of friendship to counterbalance the competitiveness among firms. p. 5

Thankfully the community spirit in the field remains. The accusations by the producers that the service industries cost overruns are a result of their greed and laziness has only divided the field from the head office people in an us vs. them type of scenario. The finger pointing by the producers has been the extent of the impact on the fields community, with no long term serious consequences.

When embeddedness is strong, the creation of communities of practice (Wenger, 1998; Brown and Duguid, 2000) generates competences that, although possessed by individuals, are collective in that they are based on a set of practices that is common to all members of a community. These competences (both tacit and codified) can transcend firm boundaries and become characteristics of an entire industrial district. As Marshall (1975, 197) wrote of nineteenth century Britain, “To use a mode of speaking which workmen themselves use, the skill required for their work ‘is in the air, and children breathe it as they grow up’”. p. 6

To clarify, it will be the producer who will need to rectify this situation. They will need to build the industry supporting institutions that will enable the types of environments that will foster the needed innovation and competition in the service industry. What an innovative oil and gas industry must have is a highly innovative and competitive service industry. This begins with the interfaces and systems that we are describing here in the Resource Marketplace of the Preliminary Specification.

Relationships within industrial districts therefore lead to diffusion but also to the creation of new knowledge through shared preoccupations. Because many people or firms can work on a problem simultaneously, a number of different solutions may be found (Bellandi, 2003b). The results is a larger and stronger "gene pool" within the sector (Loasby, 1990, 117), with the further advantage that solutions that are originally regarded as competing may turn out to be complementary and well-suited to different niches within the district.  p. 7

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 CLXXVII (RM Part XXXI)

Within People, Ideas & Objects we have developed the Community of Independent Service Providers (CISP) to support the producers and suppliers / vendors with their systems needs. These independent service providers, independent from the point of view that they are not affiliated with any specific producer within a Joint Operating Committee, but represent all of the producers within a Joint Operating Committee. Are privately contracted technical and accounting service support providers. We have discussed some of the roles these people may fulfill in the discussion of the Preliminary Specification, mostly around the further expansion of the division of labor. These roles included the Production Accounting role, the Lease Rentals and similar activities. Included in the CISP would be the IT related areas of help desk, user training, accounting integration and technical support. They would also have a role in supporting the user community.

With respect to the Resource Marketplace module and the suppliers / vendors I see a strong demand for the CISP’s involvement in supporting their organizations. The interfaces to the supplier / vendor are not well specified yet. Already there are several.

• Supplier Bidding / Commitment Manager
• Ideas Marketplace Blog
• Supplier Collaborative Interface
• Gap Filing Interface
• Supplier Contact Database
• Actionable Information Interface
• Long Term Capital Program Interface
• Work Order System
• Purchase Order System
• Payment Processing Interface
• Transaction Design Interface

However it is clear they will need comprehensive systems from People, Ideas & Objects to achieve the objectives that we have set out for the innovative producer. These will require the support necessary to ensure that the supplier / vendor gains as much from the systems as the producers. These are the types of market supporting institutions that need to be developed in order for the innovative oil and gas industry to move forward. The Community of Independent Service Providers were built off concepts that were developed by Professor Richard Langlois which he called Industrial Districts, and another of our top researchers, Professor Carlota Perez’ concept of Small Knowledge Intensive Enterprises. We will be discussing these concepts further in the Resource Marketplace module in the next few days. Today I will just introduce the concept as they describe them. From Professor Langlois’ paper “Innovation Process and Industrial Districts.”

While it is possible to conceive of a firm that is so hermetic in its use of knowledge that all stages of innovation, including the combination of old and new knowledge, rely exclusively on internal sources, in practice most innovations involving products or processes of even modest complexity entail combining knowledge that derives, directly or indirectly, from several sources. Knowledge generation, therefore, must be accompanied by effective mechanisms for knowledge diffusion and for "indigenizing" knowledge originally developed in other contexts and for other purposes so that it meets a new need. p. 1

When it comes to field operations, you have to recall that the vendors / suppliers have been the focus of the cost overruns. This has been as a result, according to the producers, to their greed and laziness. What that does in the marketplace is exactly the opposite of what is optimal in terms of a highly efficient field operations marketplace. But then I probably don’t have to explain that to the majority of the producers these days. Professor Langlois notes that we need to strive to achieve what he calls embeddedness in an Industrial District, supported by the People, Ideas & Objects Community of Independent Service Providers.

When accompanied by close social relationships, tight geographical proximity may affect innovation in ways that are less common in more highly dispersed environments. For example, an awareness of common problems can encourage several firms, or their suppliers and customers, to seek solutions, leading to multiple results that can be tested competitively in the market. These outcomes can then be relatively easily diffused among firms in the Industrial Districts (ID) because of embeddedness in a common environment. The obverse of this commonality of inspiration and ease of transmission of knowledge, however, may be an inordinately inward focus that results in an ignorance of or disdain for innovation processes in other regions or in industries not represented in the ID. Furthermore, there may be a relationship between the degree of embeddedness in the industrial district and innovation. It has been suggested that innovation increases as embeddedness increase up to a point, and that beyond that point further embeddedness results in reduced innovation performance at the firm level (Uzzi, 1997; Boschma, 2005). Thus, depending on circumstances, participation in an industrial district can either encourage or impeded innovation. pp. 1- 2

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 CLXXVI (RM Part XXX)

The question comes down to where does the current management of the oil and gas producer fit in to the Resource Marketplace of the Preliminary Specification? We have detailed how the innovative oil and gas producer and the supplier / vendor operate within the Resource Marketplace and other modules, but we have been silent on the managements role in these processes. That’s because there is no role for the non “C” class management, and that is the primary reason that People, Ideas & Objects remains in its initial phases. No money has ever been directed to People, Ideas & Object to support these developments. Any other proposal with this much value to the industry would have been funded by now. Many software companies have been funded by oil and gas managements that have no ideas but close familial or friendly relationships. This blog post is about the role management have had in ensuring that People, Ideas & Objects doesn’t get funded. Management has a vested interest in the status quo, not in a future like that of the Preliminary Specification, a future that does not involve them.

Professor Alfred P. Chandler has noted that management failed during the great depression. A time he says when the government had to intervene and increase its involvement in the economy to make up the difference. There is no reason that given a situation, management might not fail again. They also have no stake in a firm. If a crisis were to strike a firm, the management would resume elsewhere. It is the investor and debt holders who will shoulder the costs.

Chandler's review of corporate history shows the role of the merchants. Investing their capital and skills, merchants were the ones that started the ball rolling. Management currently hold the reigns, and are mindful that their options may lay elsewhere. Ownership, in the same fashion as the Merchants need to start over. Starting over begins with the oil and gas investors supporting People, Ideas & Objects and the Community of Independent Service Providers to provide an alternative means to manage their oil and gas assets. The Preliminary Specification is the beginning of that alternate means to manage their assets.

Schumpeter states that "Innovation drives economic development". For our global economy to grow, greater supply of energy is required. To meet this demand the energy producers, or energy investors, must innovate. And this role is contrasted to management as optimizers. Professor William Lazonick "The optimizing firm is not an innovating firm, indeed it can be characterized as an un-innovating firm." The costs of innovation are an investment. However, the source of the funds to support innovation are from revenues not profits, equity or debt. Or as we have stated at People, Ideas & Objects, the commodity prices are reallocating the financial resources to innovate.

As Information Technologies continue to creep into the role of management. Will they be able to continue to cut the budget to everything that offends their franchise? What will their world look like in ten years time? What will your investment look like in five years time? As time passes and no action is taken, further damages may occur that may not be resolved by an immediate install of People, Ideas & Objects software. We are still looking at several years of development time to finish these application modules. The clock is ticking.

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 CLXXV (RM Part XXIX)

In today’s post I want to stay in the domain of the supplier / vendor and discuss how their greater participation and role in the Joint Operating Committees capabilities, increases the profitability of the oil and gas producers. How this organizational conceptual model will aid not only aid the producers but also the suppliers / vendors in the innovative oil and gas industry. From Professor Ronald Coase in the “Nature of the Firm” 1937

Adam Smith explained that the productivity of the economic system depends on specialization (he says the division of labor), but specialization is only possible if there is exchange-and the lower the costs of exchange (transaction costs if you will), the more specialization there will be and the greater the productivity of the system. p. 73

The competitive advantages of the oil and gas producers are their land and asset base, and their earth science and engineering capabilities. To a large extent everything else is secondary to the firm in terms of maintaining a competitive position within the industry. What is not core to their competitive advantage can be obtained through contract from the marketplace on the basis of the “decentralized production model”. Leaving the “high throughput production” model that is currently being used behind. From Professor Coase.

This is what I said in a lecture published in Lives of the Laureates (Coase, 1995 p. 245): The costs of coordination within a firm and the level of transaction costs that it faces are affected by its ability to purchase inputs from other firms, and their ability to supply these inputs depends in part on their costs of coordination and the level of transaction costs that they face which are similarly affected by what these are in still other firms. What we are dealing with is a complex interrelated structure." Add to this the influence of the laws, of the social system, and of the culture, as well as the effects of technological changes such as the digital revolution with its dramatic fall in information costs (a major component of transaction costs), and you have a complicated set of interrelationships the nature of which will take much dedicated work over a long period to discover. But when this is done, all of economics will have become what we now call "the new institutional economics. p. 73

If the oil and gas producer is to attain a higher output of oil and gas it will require them to focus on their part of the process in a more specialized manner. And that would apply to the overall industry as much as to any individual producer. Leaving the work that they may be involved in today to the marketplace to provide. This might have the prototypical producer firm configured with the officers, engineers, geologists, geophysicists and a handful of lawyers for contracts and land deals. Everyone else provided through a service contract in the Resource Marketplace module. This producer firm will manage their interests in a variety of Joint Operating Committees and participate in the development of their properties. Each JOC having acquired capabilities from the supplier / vendors in the Resource Marketplace.

It is this reliance on the Resource Marketplace module at both the producer level and the Joint Operating Committee that I am emphasizing in this post. Specialization at all levels of the industry will enable the oil and gas and service industries to produce more oil and gas with the same resource base. This is the benefit of the division of labor. We however, first need to implement a new organizational model that incorporates all the elements of the industry. And that includes the service providers in the field and in the head offices of the producers. Without that we are only solving part of the problem. The point of this exercise is that with the increased output of oil and gas, and the more efficient production of that oil and gas as a result of the market configuration noted above. The oil and gas producer will be more profitable as a result of the software that identifies and supports this decentralized production model.

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 CLXXIV (RM Part XXVIII)

Listed as a project on Professor Richard Langlois website is “The Vanishing Hand” which he describes in his paper “The Vanishing Hand: the Changing Dynamics of Industrial Capitalism” as.

The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates. p. 3

Suggesting that we are moving towards a market based form of industrial capitalism. One that leaves behind the “visible hand” of the hierarchy and its management. Yesterday we noted that there were interfaces for the service industry to the Resource Marketplace module of the Preliminary Specification. Specifically a project management interface that enabled the provider to determine and pass their Dynamic Transaction Costs on to the Joint Operating Committee. It is necessary that the producers provide the service providers with access to the software in this fashion, and to offset these costs to enable the markets to expand.

As in Chandler, secular changes in relative prices attendant on "globalization" (driven by technology or politics) affect economic organization not only directly but also, and perhaps more importantly, indirectly through changes in technology. Production costs matter as much as transaction costs (Langlois and Foss 1999) Moreover, the kind of transaction costs that matter in history are often not those of the Williamson kind but those I have labeled dynamic transaction costs (Langlois 1992b). Costs of coordinating through markets may be high simply because existing markets - or more correctly, existing market-supporting institutions - are inadequate to the needs of new technology and of new profit opportunities. But when markets are given time and a larger extent, they tend to "catch up," and it starts to pay to delegate more and more activities rather than to direct them administratively within a corporate structure. p. 5

The oil and gas industry has to consider itself a market-supporting institution to the service industry. These service providers are not primary industries, they are dependent on their revenues from the oil and gas producers. It would serve the oil and gas industry well to remember that they are dependent on the service industry as well. There has been so much talk about how greedy and lazy the service industry is from the producers themselves that I can’t imagine how more toxic it could get. The attitudes and actions of an innovative and successful oil and gas producer are so far removed from this behavior, we have far to travel.

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

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 CLXXIII (RM Part XXIV)

We continue on our discussion of capabilities in the Resource Marketplace module of the Preliminary Specification. Today we want to look at the situation from the point of view of the supplier / vendor in terms of how they are providing capabilities to the Joint Operating Committee that employs them. Yesterday we discussed how much of the data regarding their service operation is populated into the Joint Operating Committees “Planning & Deployment Interface”.

From the supplier / vendor’s point of view being part of the detailed planning of the program will not be anything to new. What we are seeking to achieve is for the oil and gas producers as represented in the Joint Operating Committees having a greater reliance on “thicker” markets in the service industry. A greater dependence on an innovative and competitive service industry marketplace is a necessary building block as a base for the innovative oil and gas industry. This is reflected in the People, Ideas & Objects Preliminary Specifications “Ideas Marketplace Blog”, and the decentralized manner in which the industry operates. Some may suggest the industry operates in that fashion, I have argued here that we are far from that conceptual model. That is evidenced by level of conflict between the producers and suppliers and the lack of competition in the supplier marketplace. I see the producer firms as the primary reason for this situation. They have consistently obstructed the service industry market from operating effectively at critical times. This is reflected in purchasing equipment for their own purpose, like drilling rigs, not working with anything but proven technology, not sponsoring any research, not working with anyone other than of size, etc.

It is important to recall that the user of the “Planning & Deployment Interface” will be using the tool to map out a path to success from their internal capabilities and those that are acquired through the supplier we are discussing here, and any other suppliers they may have selected. For the supplier to overstate their capabilities for marketing or other purposes would be a tactical mistake that could cost their company dearly. Furthermore, if they represent that they have x resources available, and find at the time of the project, that they need to make changes or are short of the specific resources they committed, they will find the same types of problems with the next job they are selected for. Recall there is the open collaborations that are in the “Supplier Collaborative Interface” for the Joint Operating Committee to air their concerns. Therefore, as will be the case in an innovative oil and gas industry, the service industry provider will need advanced Project Management tools to enable them to manage their resources in the Resource Marketplace module of the Preliminary Specification.

But often - and especially when innovation is involved - the links among firms are of a more complex sort, involving everything from informal swaps of information (von Hippel, 1989) to joint ventures and other formal collaborative arrangements (Mowery, 1989). All firms must rely on the capabilities owned by others, especially to the extent those capabilities are dissimilar to those the firm possesses. p. 108

In an innovative oil and gas industry with the demands on the service industry being as substantial as they are. And with the amount of work that is bid and committed too, the contingencies the supplier / vendor are subject too are as variable and costly to the service provider. A means to mitigate those costs, or alternatively to pass those costs on to the Joint Operating Committee if they are being incurred should be something that the supplier / vendor should be aware of. These cost controls will be part of the “Supplier / Vendor Project Management Interface” of the Resource Marketplace module. The producers may have other choices in terms of suppliers to turn to if these supplier / vendor Dynamic Transaction Costs are deemed to be too high. I don’t foresee many supplier / vendors continuing to lose money on contracts that also have the potential to ruin their reputations. The ability for suppliers to recover their Dynamic Transaction Costs will be a cost of doing business for the producers in the innovative oil and gas business. Just as the Joint Operating Committee will be able to rely on their suppliers capabilities to map out their path to success in the “Planning & Deployment Interface”.

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 CLXXII (RM Part XXVI)

In terms of content, or point of discussion, we are bouncing around a bit. Our overall topic is capabilities, and we are moving from yesterday’s discussion of modularity to today’s topic of dynamic transaction costs. There is a point to all of this bouncing around and we’ll get to it some day. Dynamic Transaction Costs are somewhat of a unique area of research for Professor Richard Langlois. That is to say I think he is the leading researcher on the topic. It is a topic that affects us significantly as we operate in an environment where change is the one constant that we can rely on. Langlois’ definition of Dynamic Transaction Costs from “Transaction Cost Economics In Real Time” is as follows.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

Clearly the oil and gas industry will have significant Dynamic Transaction Costs without People, Ideas & Objects Preliminary Specification. That is to say that they will not have the capabilities they need when they need them if they continue to use SAP in the structured hierarchy. Nonetheless, even with the use of People, Ideas & Objects there would be Dynamic Transaction Costs incurred as a result of the movement to full reliance on the market for its resources. Recall we are looking for “thicker” markets to develop as the Joint Operating Committees look to the market for all of its Resource Marketplace. Lets recall what capabilities are with a quote from Langlois’ paper, and the phrase from Harvard Professor Carliss Baldwin of “Knowledge begets capabilities beget action”.

Although one can find versions of the idea in Smith, Marshall, and elsewhere, the modern discussion of the capabilities of organization probably begins with Edith Penrose (1959), who suggested viewing the firm as a 'pool of resources'. Among the writers who have used and developed this idea are G.B. Richardson (1972), Richard Nelson and Sidney Winter (1982), and David Teece (1980, 1982). To all these authors, the firm is a pool not of tangible but of intangible resources. Capabilities, in the end, are a matter of knowledge. Because of the nature of specialization and the limits to cognition, organizations as well as individuals are limited in what they know how to do effectively. Put the other way, organizations possess a pool of more-or-less embodied 'how to' knowledge useful for particular classes of activities. pp. 105 - 106.

In a previous post we noted that when a supplier / vendor was selected within the “Planning & Deployment Interface” of either the Research & Capabilities or Knowledge & Learning module. Then the associated key and operational staff c/w their positions in the Military Command & Control Metaphor would be populated into the interface from the Vendor / Supplier Contact Database. With this information that we have learned today about the Dynamic Transaction Costs. We could also populate the “Planning & Deployment Interface” with the capabilities information from the supplier / vendor when it is selected. This information would also become available when it was required from the Vendor / Supplier Contact Database and be maintained by the vendor, as all the information in that database is.

"In a metaphoric sense, at least, the capabilities or the organization are more than the sum (whatever that means) of the 'skill' of the firms physical capital, there is also the matter of organization. How the firm is organized - how the routines of the humans and machines are linked together - is also part of a firm's capabilities. Indeed, 'skills, organization, and technology are intimately intertwined in a functioning routine, and it is difficult to say exactly where one aspect ends and another begins' (Nelson and Winter, 1982, p. 104)." p. 106

There will be a significant amount of information that is made available to the users of the “Planning & Deployment Interface”. Certainly the information to determine what is required to mitigate the Dynamic Transaction Costs, define any deficiencies and to map out a successful project. We’ll be discussing more on this topic in the days to come.

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 CLXXI (RM Part XXV)

We have completed our review of how the Resource Marketplace module of the Preliminary Specification manages the boundaries of the firm and markets. Among the many areas of research of Professor Richard Langlois is modularity. Modularity builds on the boundaries between the firm and markets and is the reason that the Preliminary Specification has eleven modules. The primary advantage gained by using modularity is the ability to manage change. By isolating the impact of the change to one module, the impact of the changes are therefore manageable.

Modularity is a very general set of principles for managing complexity. By breaking up a complex system into discrete pieces - which can then communicate with one another only through standardized interfaces within a standardized architecture - one can eliminate what would otherwise be an unmanageable spaghetti tangle of systemic interconnections. p. 1

People, Ideas & Objects impact is beyond just the software that is proposed to be developed. Organizations such as the producer firm, the Joint Operating Committee and the service industries participants are all impacted as a result of the modules in the Preliminary Specification.

What is new is the application of the idea of modularity not only to technological design but also to organizational design. Sanchez and Mahoney (1996) go so far as to assert that modularity in the design of products leads to - or at least ought to lead to modularity in the design of the organizations that produce such products. p. 1

and

Why are some (modular) social units governed by the architecture of the organization and some governed by the larger architecture of the market? p. 2

It is in the Revenue Model that People, Ideas & Objects assert that these software developments are not just for the oil and gas producers. They are for individuals, society, and the service industry as well. To focus only on the producers misses some of the “who” we are developing these systems for.

The set of design rules that guide social interaction are what we can generally call social institutions (Langlois 1986). These rules determine (among other things) the extent to which, and the way in which a society is a modular system. The desirability of modular design is a theme with a long history in the theory of social institutions. Adam Smith long ago proposed a decentralization scheme based on what he called "the obvious and simple system of natural liberty," by which he meant a system of private property regulated by common law and subject to minimal central administrative intervention. On the economic level, this approach would lead, he believed, to economic growth spurred by innovation, learning, and an ever increasing division of labor. pp. 14 - 15

and

if we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place," he wrote, "it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its order. We must solve it by some form of decentralization" (Hayek 1945, p. 524). p. 15

When a user is working in the Resource Marketplace module. Whether they are in an oil and gas producer, a Joint Operating Committee or a supplier / vendor. The scope of what they are dealing with are limited to the Resource Marketplace. Modularity provides interfaces to the other modules when necessary, however, dealing with just the data, processing and functionality of the Resource Marketplace enables the module to deal with many of the problems within that marketplace. The key variable that it is able to deal with is change.

Under some circumstances, the benefits of modularization may not be worth the cost. For example, a system whose environment never changes may not have to worry much about modularization. p. 8

and

In a world of change, modularity is generally worth the costs. The real issue is normally not whether to be modular but how to be modular. p. 11

These software development issues and opportunities fall within the scope of a producers General & Administrative costs. They are not core to their competitive advantages of their land and asset base, or earth science and engineering capabilities. Yet they are critical to provide the producer with what People, Ideas & Objects asserts in our Revenue Model as our core competitive advantage, as the most profitable means of oil and gas production. It is the business of the oil and gas business that needs to be focused on in order to move forward and provide for tomorrows earnings. Muddling through this time may not work.

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.