The Preliminary Specification Part CLXXXVIII (PLM Part XXIII)

Our fourth pass through the Preliminary Specification is focused on capabilities. And although it doesn’t seem like we ever talk specifically about them, we are in general. Professor Richard Langlois in his 1992 paper “Transaction Costs Economics in Real Time” provides us with an excellent definition of what capabilities are in the corporate setting.

This is the basic modularization of the market economy. It accords well with the modularization G. B. Richardson (1972) suggested in offering the concept of economic capabilities. By capabilities Richardson means "knowledge, experience, and skills" (1972, p. 888), a notion related to what Jensen and Meckling (1992) call "specific knowledge and to what Hayek (1945) called "knowledge of the particular circumstances of time and place." For the most part, Richardson argues, firms will tend to specialize in activities requiring similar capabilities, that is, "in activities for which their capabilities offer some comparative advantage" (Richardson 1972, p. 888). p. 27

Yesterday we discussed the “Marketplace Interface” of the Petroleum Lease Marketplace complete with the user vision. We hopefully saw with the brief description of how the system could provide a window on the Petroleum Lease Marketplace and how that contrasted with the current rows and rows of file cabinets. Application of the firms capabilities within that “Marketplace Interface” will be how the producer and Joint Operating Committee will build its firm and earn its profits. How much “knowledge of the particular circumstances of time and place” is not being acted upon in your firm today?

There will be significant change in the transition from the file cabinets to the deployment of People, Ideas & Objects Preliminary Specification. These changes impute that there will be a cost and part of these costs will be this software development. Professor Langlois calls these “Dynamic Transaction Costs”.

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

Who said that its not the destination, but its the path. That is what this software development is about, the path. We have a rough idea where we are going and what it might look like, however, without the involvement of the user in the development of these systems its all pretty much an exercise in futility. User involvement is critical to the success of People, Ideas & Objects. The Preliminary Specification is only a starting point, the user community can take it and build upon it as they desire and need, and over time as the organization and markets change, so will the software. And the capabilities of the marketplace and the firms will develop as a result.

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

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 CLXXXVII (PLM Part XXII)

Although we have been discussing modularity I think it is best that we start somewhat fresh from the beginning for the purposes of the Petroleum Lease Marketplace of the Preliminary Specification. Since this module is a “marketplace” that we are emulating it is important to focus on why we are designating it a market. The reasoning arises from the research into modularity of Professor Richard Langlois. This post will focus on that research and emphasize the “Marketplace Interface”, doing so by discussing and mentioning the highly controversial user vision, of the Petroleum Lease Marketplace”.

It was early on in the Preliminary Specification that I indicated that I would not mention the user vision. I think I made a mistake by making that assertion. I’m finding that my writing is constrained by not allowing the discussion to flow with use of the user vision as part of the “Marketplace Interface” of the Petroleum Lease Marketplace. As controversial as it was to discuss the user vision at that time, it was maybe too early in the Preliminary Specification to have any meaning. We now have some substantial attributes to the modules and the ability to add the user vision to the module is becoming a necessary element to express how I see the specification developing. Therefore I will now include discussion of the user vision in the details of the specification and hope that it will add value. If it seems too controversial, then just ignore it. I can’t seem to write around it any longer.

It was during the Preliminary Research Report that we initially applied Professors Anthony Giddens and Wanda Orlikowski’s research in Structuration to the Joint Operating Committee. There research states that people, organizations and society move together or there will be failure. Professor Orlikowski’s Model of Structuration states that technology is a part of society and these both define and constrain action. Therefore when we look at the two possible organizational types of architectures for Petroleum Leases we see the Marketplace and the File Cabinet. But seriously the choice is as stark and the contrast is that dramatic. To match the organization, the people and societal definitions and constraints make the marketplace the ideal architecture. To therefore designate a module within the Preliminary Specification as the Petroleum Lease Marketplace builds on this simple architecture. From Professor Richard Langlois “Modularity in Technology, Organization and Society”.

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

This next quote is the critical one. Its a bit of the chicken and egg problem however. I don’t know if we are taking elements of the technology and mapping them to the organization, or taking the marketplace and mapping it to the technology. Both are undergoing significant changes in the development of the Petroleum Lease Marketplace.

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

Lastly a scenario, users need a window in which to view the marketplace. In the Petroleum Lease Marketplace is the “Marketplace Interface” which captures elements of the user vision. Consider a user was viewing a Google Earth representation of the Unit that they are a member of the Joint Operating Committee. While viewing, contextual tiles of agreements, leases and other data are populated with the properties information if the user wants to click on those and query the information it is there as well as historical accounting data. If users from another firm are also viewing the property, they can be seen and engaged in a collaboration, and immediately contextual tiles of information about the person are available to you, and any previous correspondence and outstanding matters appear on your screen. Meanwhile you click on the newly drilled well that you heard was performing beyond expectations to get an update of its actual production. You also notice that the adjoining lands have just been posted for bid by a producer firm who is not a member of your Joint Operating Committee. You are able to call on the other producers in the Unit and share a recorded video meeting within the Petroleum Lease Marketplace within ten minutes of that discovery, and set in motion a plan to deal with it.

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 CLXXXVI (PLM Part XXI)

Continuing on with our discussion of the Petroleum Lease Marketplace module of the Preliminary Specification. Our discussion on the boundary of the firm and market continues and begins to take on some of the elements of modularity. Both research topics of Professor Richard Langlois. It is remarkable the differences between the two marketplace modules. In the Resource Marketplace module there is a different context and feel then in the Petroleum Lease Marketplace. An attribute of the modularity principle and its ability to impose an enhanced division of labor.

In yesterday’s post we noted the ability to build a company was one of the things that could be done while working within the Petroleum Lease Marketplace (PLM). Implying that the marketplace was an area where the active state of affairs was to build something as opposed to just fill file cabinets with agreements. This is the key point as to why the PLM has to be a marketplace. It must emulate the personality of the people who are building the firm. From Professor Langlois’ Industrial Dynamics, Innovation and Development.

Industrial economists tend to think of competition as occurring between atomic units called "firms." Theorists of organization tend to think about the choice among various kinds of organization structures - what Langlois and Robertson (1995) call "business institutions.” But few have thought about the choice of business institution as a competitive weapon. p. 1

The “Marketplace Interface” of the Petroleum Lease Marketplace module of the People, Ideas & Objects system provides the innovative oil and gas producer with the competitive weapon they need to build their firm. Simple. And without having mentioned the controversial user vision.

On the other side of the ledger, an open modular system can more effectively direct capabilities toward improving the modules themselves (Langlois and Robertson 1992). Such a system harnesses the division of labor and the division of knowledge, allowing organizational units to focus narrowly and thus deeply; at the same time, it magnifies the number of potential module innovators, and thus can often take advantage of capabilities well beyond those even a large unitary organization could marshal. p. 19

The modular nature of the Preliminary Specification provides this ability to focus on the important attributes within the module. The Petroleum Lease and Resource Marketplaces are different just as the Financial Marketplace, Research & Capabilities and Accounting Voucher modules are unique. Each have thier own unique people and activities that are separate and distinct from one another. Yet, they all interact to support the innovative oil and gas producer.

A complex systems product is underlain by an architecture: a set of parts and a way of fitting those parts together. An integral architecture is one in which the parts depend on one another in complex and often unpredictable ways: the system is a tangle of spaghetti. By contrast, a modular architecture is one that regularizes the dependencies among the parts, forcing them to interact only in relatively formalized and predictable ways (Lanlgois 2002b) p. 6

The point that I am struggling to get across is the interface in which users will access the marketplace in the Petroleum Lease Marketplace. It is the “Marketplace Interface” that I am highlighting in this and yesterday’s post as what I think is the value to an oil and gas concern. It is through this somewhat simple software representation of the market that much of the value will be gained. We will continue on with the topic of modularity tomorrow.

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 CLXXXV (PLM Part XX)

In today’s post we will further discuss the boundary of firm and markets with respect to the Petroleum Lease Marketplace of the Preliminary Specification. In this the fourth pass we are focusing on capabilities. And the question should be what capabilities are we seeking to achieve from the Petroleum Lease Marketplace and why is there a need to transition to this new model of organization, a marketplace. For that lets begin with a quote from Professor Richard Langlois’ paper “Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization”.

The organizational question is whether new capabilities are best acquired through the market, through internal learning, or through some hybrid organizational form. And the answer will depend on (A) the already existing structure of capabilities and (B) the nature of the economic change involved. p. 21

What we currently have is a number of departments; Land, Legal, Land Administration, some Production and Exploration Administration and lets not forget Accounting, currently manning the store that will “morph” into the Petroleum Lease Marketplace. These formerly buttoned down departments will transition to new roles, some in new service provider firms, where they will be part of a marketplace environment. It will be within the marketplace they will “market” their capabilities to those in demand for their services.

If a profit opportunity requires a configuration of capabilities different from what already exists in the economy, the Schumpeterian process of creative destruction may be set in motion. p.21

Its a marketplace, not a department within a bureaucracy. One within a dynamic, entrepreneurial and innovative oil and gas producer. A place where the act of buying and selling and trading leases or interests in properties, making deals or building companies can and will be done.

Seldom if ever have economists of organization considered that knowledge may be imperfect in the realm of production, and that institutional forms may play the role not (only) of constraining unproductive rent seeking behaviour but (also) of creating the possibilities for productive rent-seeking behaviour in the first place. To put it another way, economists have neglected the benefit side of alternative organizational structures; for reason of history and technique, they have allocated most of their resources to the cost side. p. 6

It is interesting that one of the roles of the firm, in this revised boundary of the firm and market, is the enhanced role that coordination will take on. This next quote states explicitly the need to enhance the coordination by way of routines and capabilities.

All recognize that knowledge is imperfect and that most economically interesting contracts are, as a consequence, incomplete. But most of the literature considers seriously as coordinating devices only contracts and the incentives they embody. It thus neglects the role - the potentially far more important role - of routines and capabilities as coordinating devices. Moreover, the assumption that production costs are distinct from transaction costs and that production costs can and should always be held constant obscures the way productive knowledge is generated and transmitted in the economy. p. 14

Since contracts are one of the key end products of the activities that are undertaken in the Petroleum Lease Marketplace module. It is these contracts incompleteness that will continue to demand the services of those employed in the marketplace and the firm. Services of “routines and capabilities as coordinating devices”. Making the “marketplace” a key interface of the Petroleum Lease Marketplace module.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXXIV (PLM Part XIX)

The Petroleum Lease Marketplace module is the second “marketplace” module of the Preliminary Specification. Like the Resource Marketplace module, which deals with the resources used in the development of oil and gas, the Petroleum Lease Marketplace emulates the marketplaces that exist for Petroleum & Natural Gas Leases, concessions, etc. and the associated activities involved around those “things”. To accurately reflect on the marketplace metaphor I have to mention the user vision, which I have now done, and will not speak of it again. What is helpful in understanding the capabilities that are attained by developing “marketplaces” in the Preliminary Specification is this quote from Frederick von Hayek.

The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. ...The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement. (Hayek 1945, pp. 526 - 527)

Prices for the bonus paid on acreage. The price asked by a producer for a working interest share in a property. These are the activities that occur in the marketplace everyday. What we are doing in the Petroleum Lease Marketplace is emulating the real marketplace to enable it to grow thicker and more robust. With market opportunities being dislocated some times by thousands of miles from interested parties, the ability for market participants to meet is limited. Even with the Internet the chance of finding someone is difficult. However, with a module like the Petroleum Lease Marketplace, you have a focused forum in which to deal with interested parties. At the same time you have the means in which to transact and manage the business, develop agreements, pay lease rentals etc. The Petroleum Lease Marketplace is a software environment that provides for the marketplaces emulation.

Critical to the success of this marketplace is the further division of labor and specialization. We have discussed earlier in the specification how the Lease Rental Administration could be handled on an industry wide basis by a service provider. Other roles may be able to be handled in a similar fashion in the Petroleum Lease Marketplace. With the development of this software module or marketplace emulator, would be the market supporting institutions that would bring in the efficiencies that would enhance the effectiveness of the marketplace. Providing assurances such as when a new P&NG Lease was acquired it was known that it would automatically have its lease rentals paid by your service provider.

There are many advantages to emulating the Petroleum Lease Marketplace in the Preliminary Specification. Just as there are advantages in the Resource and Financial Marketplace modules. Attempts at exchanges and other technical solutions have been tried before but they don’t have the “business” aspects that a “marketplace” has. What we are replicating is a business unit, not creating a technological solution. A significant difference to the users and producers who use the marketplace today, and will use the Petroleum Lease Marketplace module if it provides further value in their use of the actual 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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXXIII (PLM Part XVIII)

As we had noted in the Resource Marketplace module of the Preliminary Specification. The capability for the producer to scale back their production in the face of poor commodity prices was possible. In the Resource Marketplace module we were talking about the implications of shutting in production would have on the costs of production. That is by moving to the “decentralized production model” from the “high throughput production” model, deeming the costs of production as variable, therefore costs decline in line with revenues. It is in the Petroleum Lease Marketplace module that the capability to reduce production is acquired through the "Marginal Production Threshold Interface" and is the subject of this blog post.

The operational decision making authority lies with the Joint Operating Committee. And we have discussed in the past how the decision may be made to reduce production by 15% or some other amount to help return the commodity markets to balance. With the desire to move to a “decentralized production model”, where all of the costs are variable and therefore suspended with the production, the decision to shut-in production completely, or just partially is something that should be possible through the "Marginal Production Threshold Interface".

The interface would provide the means in which the partnership could agree to the criteria in which production would be suspended. We see today with Natural Gas prices in North America, a situation where no one is making any money. The ability to incinerate capital is something that the oil and gas industry is famous for and I would suggest they begin to actively do something about their poor reputation. When prices meet the criteria that the partnership have agreed too to curtail production. Then the operational steps to reduce the production will automatically be put in place when those criteria are met. Whether that is manually issuing the order to reduce the production, or if the systems are automated, the system is automatically triggered when the criteria is met.

The ability to collaborate and agree among the partnership falls within the domain of the Petroleum Lease Marketplace. Having all of the Joint Operating Committees that you have an interest in located within one interface in the Petroleum Lease Marketplace will provide you with an understanding of what your production profile will be at various price scenarios. This can be provided through a “what if” scenario page within the interface. Extensions of the prices and volumes will also calculate what your pro-forma revenues will be. Assumptions can be made on the costs.

If each producer within the industry was able to manage their production in this manner there would be less destruction of capital and less volatile commodity prices. The ability to manage prices by spending capital, or not, is a very blunt instrument that leads to over and under production at the extremes. This mechanism will enable the producers to stop producing the marginal production and save the reserves for the day when they can be produced at a profit. A little faith in markets is all that is required.

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 CLXXXII (PLM Part XVII)

We begin now with our fourth, or capabilities, pass through the Petroleum Lease Marketplace module of the Preliminary Specification. This will consist of reviewing Professor Richard Langlois’ research on organizations involving Dynamic Transaction Cost Economics, Modularity, the Boundary of Firms, Innovation and Capabilities among many other things. I thought that for today it would be appropriate to review the interfaces that have been introduced so far, and then tomorrow begin with Professor Langlois material.

The following are the five interfaces that have been introduced in the Petroleum Lease Marketplace module of the Preliminary Specification.

Capabilities & Commitments Interface

An interface that details the capabilities, that are by agreement with partnership companies, either acquired or committed to. 

Long Term Capital Program Interface

Aggregates the information contained within the firms reserve and long term budgeting reports. Scrubs the data of any proprietary information. Details the information for geographic region and account detail. Publishes it in aggregate with other producers data to the service industry for their use in determining long range plans. 

Marginal Production Threshold Interface

A collaborative interface where the partnership represented in the Joint Operating Committee determines the thresholds at which marginal production will be shut-in. Based on commodity price or volume, the Marginal Production Threshold Interface will have input into the production operations to cease production at certain thresholds when obtained. 

Revenue Per Employee Interface

Public detailed calculations on Revenue Per Employee for each member of the oil and gas producer community. Private detailed calculations of Revenue Per Employee for each Joint Operating Committee you participate in. Details include trajectories for each variable. Variables include price, volume and number of employees. 

Strategy Interface

A summary of the strategy for each Joint Operating Committee that you participate in. As each JOC has its own strategy this central location provides all of the pertinent information for the user to interact, collaborate and affect change within the Joint Operating Committees strategy. 

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 CLXXXI (RM Part XXXV)

One area that we have not discussed in terms of capabilities in the Resource Marketplace module of the Preliminary Specification. Is where the authority and responsibility for any field operations falls as a result of the revised boundaries of the firm and market. If we have dynamic markets providing innovative products and services to the producers and Joint Operating Committees how does this affect the authority and responsibilities that are established in the business today.

The clearest example to provide direction to this issue is the BP Gulf of Mexico well blow out last year. The findings established that BP was 100% responsible for the cause of the well blow out, and that clearly is the way that the business is run. The earth science and engineering resources are within the producer firms, and Joint Operating Committees, to design and engineer the operations to meet the safe and profitable operations of the oil and gas facilities. Without an appropriate engineering design there is little that a vendor can do in the field with a program that is destined to fail. With the changes being made in the Preliminary Specification, where reliance on an innovative Resource Marketplace for the service industry products and services, nothing will change in terms of this responsibility. The engineering staff at the oil and gas producer or Joint Operating Committee will have more choice in terms of products and services in terms of what they can do in the field. A second point on this discussion, is also the changes within the producer firm in terms of the reduction in the bureaucracy. From Professor Richard Langlois book “The Dynamics of Industrial Capitalism”.

History is never kind to historicists, of course; and the facts of the last quarter century have made life uncomfortable for those who would project the Schumpeter-Chandler model into the present. It has become exceedingly clear that the late twentieth (and now early twenty-first) centuries are witnessing a revolution at least as important as, but quite different from, the one Berle and Means decried and Schumpeter and Chandler extolled. Strikingly, the animating principle of this new revolution is precisely an unmaking of the corporate revolution. Rather than seeing the continued dominance of multi-unit firms in which managerial control spans a large number of vertical stages, we are seeing a dramatic increase in vertical specialization — a thoroughgoing “de-verticalization” that is affecting traditional industries as much as the high-tech firms of the late twentieth century. In this respect, the visible hand, understood as managerial coordination of multiple stages of production within a corporate framework, is fading into a ghostly translucence. p. 7

Management having less influence in the day to day of an oil and gas producer does not affect the authority or responsibility either. The engineers are qualified and regulated in terms of their qualifications and certifications. If they are signing their programs then they have their career on the line which to me is worth substantially more then the controls a manager may have established.

In highly developed economies, moreover, a wide variety of capabilities is already available for purchase on ordinary markets, in the form of either contract inputs or finished products. When markets are thick and market-supporting institutions plentiful, even systemic change may proceed in large measure through market coordination. At the same time, it may also come to pass that the existing network of capabilities that must be creatively destroyed (at least in part) by entrepreneurial change is not in the hands of decentralized input suppliers but is in fact concentrated in existing large firms. p. 14

Substantial change, creative destruction and innovation throughout the service and oil and gas industries. That is what is required to resolve the problems of the day. Its important to remember that doing so is as Professor Langlois states “Economic growth is about the evolution of a complex structure (Langlois 2001).” p. 6

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 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.