The Preliminary Specification Part CCXLI (R&C Part LI)

This will be the last post in this the fourth or capabilities pass through the Research & Capabilities module of the Preliminary Specification. Tomorrow we will begin our fourth pass through the Knowledge & Learning module. To expand the economic performance of the oil and gas producer requires that you focus on their competitive advantages of their land and asset base, and earth science and engineering capabilities. The Research & Capabilities module focuses on the producers earth science and engineering capabilities and provides the means in which to document them, expand them, deploy them, and most importantly innovate off of them. Professor Richard Langlois in his book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy”.

Indeed, the job of the entrepreneur is precisely to introduce new knowledge. The “Circular Flow of Economic Life” is a state in which knowledge is not changing. Economic growth occurs at the hands of entrepreneurs, who bring into the system knowledge that is qualitatively new – knowledge not contained in the existing economic configuration. p. 27

As we have learned “knowledge beget capabilities, and capabilities beget action” and capabilities are the “knowledge, skills and experience” of the people involved. People, Ideas & Objects are working to bring these systems to the oil and gas industry. Systems that provide the computers with the work that they do best and with work that people do best, ideas. So that capabilities should be comprised of knowledge, skills, experience and ideas. The Research & Capabilities module enables the producers capabilities to be captured and deployed in innovative ways.

There has to be a mechanism by which new knowledge enters the system. And that mechanism cannot be rational calculation, for as David Hume (1978, p. 164) long ago observed, “no kind of reasoning can give rise to a new idea.” p. 27

and

What has been done already has the sharp-edged reality of all things which we have seen and experienced; the new is only the figment of our imagination. Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it. p. 27

This next quotation is focused on a specific type of innovation. The type of innovation that People, Ideas & Objects is bringing to the oil and gas industry. However, the conclusion I think is universal in its application to capabilities of all types, and not just organizational capabilities. And that is that “those capabilities were the result, not the cause, of the innovation.” This is the primary reason that Research was grouped together within a module with Capabilities, they have a strong interaction with one another.

The first, and most obvious, point is that it was an outside individual, not an organization, who was responsible for the reorganization of the industry. Lazonick is right in saying that genuine innovation involves reorganizing or planning (which may not be the same thing) the horizontal and vertical division of labor. But it was not in this case “organizational capabilities” that brought the reorganization about. It was an individual and not at all a “collective” vision, one that, however carefully thought out, was a cognitive leap beyond the existing paradigm. If SMH came to possess organizational capabilities, as it surely did, those capabilities were the result, not the cause, of the innovation. p. 46

As we move to the Knowledge & Learning module we’ll deal with the deployment of these capabilities in the Joint Operating Committee.

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

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

The Preliminary Specification Part CCXXXIX (R&C Part XLIX)

The question that we have to ask ourselves is why should we focus on capabilities in the oil and gas industry. I think it is because we have lost the ability to respond to market signals and initiate new and innovative thinking. These next two posts will ask the difficult questions that should be asked in terms of “what” and “how” the industry has been operated and what should be done to correct these behaviors. The Research & Capabilities module, along with the other modules of the Preliminary Specification enable the oil and gas producer, and particularly the Joint Operating Committee, to act in their best interests. These posts are once again critical of managements ways, and I dare ask them what are they going to do about it.

In the Preliminary Research Report I suggested that the oil and gas industry was not fundamentally different then the former Soviet Union in terms of its ways and means. Going through the motions and determining “best practices” shows a state of stagnation that is very close to death, in my opinion. We see the natural gas prices that everyone watches but no one does anything about. Everyone complains about the service industry, but no one does anything about it. The market system hasn’t existed in the oil and gas industry for so long, no one even knows what it would look like. From Professor Richard Langlois book “The Dynamics of Industrial Capitalism” chapter 1.

The question, then, is clear: why did managerial coordination supersede the price system? Why did “managerial capitalism” supersede “market capitalism” in many important sectors of the American economy beginning in the late nineteenth century? p. 9

To reinstate the market and the dynamism of the market system in the oil and gas industry will require new systems to identify and support innovative producers, suppliers and Joint Operating Committees. The Research & Capabilities module is designed to enable the systemic thinking that is necessary for the earth science and engineering capabilities of the producer and Joint Operating Committees to act in dynamic, innovative and market fashion.

The parallel of the current system to the former Soviet Union is striking when you realize the pervasiveness of the non-thinking environment. From Professor Langlois’ “Economic Institutions and the Boundaries of the Firm: The Case of Business Groups”.

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.” ... Accompanying these advantages are shortcomings, inherent in the nature of the system. When the system pursues a few priority objectives, regardless of sacrifices or losses in lower priority areas, those ultimately responsible cannot know whether the success was worth achieving. The central authorities lack the information and physical capability to monitor all important costs—in particular opportunity costs—yet they are the only ones, given the logic of the system, with a true interest in knowing such costs. (Ericson, 1991, p. 21).

This is the one culture of the industry that we are moving against. It is also the most powerful. Management control the budget and have exercised it by not supporting People, Ideas & Objects. Show me an ERP system with the depth of research into oil and gas that the Preliminary Specification has, well there are none. They all get financed on relationships with maintaining the status-quo with management. The fact that there has been no funding proves that management are too conflicted to do the right thing in this regard. It therefore will be taken out of their hands and the investors and the C class executives will have to make the decision to fund People, Ideas & Objects. After all they have some concerns with management as well, and then they’ll have to find a real job.

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 CCXL (R&C Part L)

I can criticize and taunt the management of the oil and gas companies as I have throughout my writings. There are however some truths that we should consider and make sure that we understand. These quotations are taken from Professor Richard Langlois book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy.”

As soon as we go into details and inquire into the individual items in which progress was most conspicuous, the trail leads not to the doors of those firms that work under conditions of comparatively free competition but precisely to the doors of the large concerns – which, as in the case of agricultural machinery, also account for much of the progress in the competitive sector – and a shocking suspicion dawns upon us that big business may have had more to do with creating [the modern] standard of life than with keeping it down. (Schumpeter 1950 [1976, p. 82].) p. 2

There is no denying that the management revolution has taken the oil and gas industry to a scope and scale that is impressive and productive. The question is where do we go from here? We currently stand on the shoulders of giants and have absolutely no vision, no plan and no means in which to approach the future demands of societies needs for energy. We not only have no plan for the future we run the risk of failure of the existing “management” infrastructure. We have far to fall. Management have failed before, and when they do fail, they leave it for the bond holders and investors to clean up the mess, while they look for greener fields elsewhere.

There is no question how economic growth will occur. That is from organizational change. But I think that it is intended to be as a result of constructive action not as a result of atrophy and inaction.

Institutions may be the ultimate drivers of economic growth, but organizational change is the proximate cause. As Smith tells us in the first sentence of The Wealth of Nations, what accounts for “the greatest improvement in the productive power of labour” is the continual subdivision of that labor (Smith 1976, I.i.1). Growth in the extent of the market makes it economical to specialize labor to tasks and tools, which increases productivity – and productivity is the real wealth of nations. As the benefits of the resulting increases in per capita output find their way into the pockets of consumers, the extent of the market expands further, leading to additional division of labor – and so on in a self-reinforcing process of organizational change and learning (Young 1928; Richardson 1975). p. 3

With the selection of ERP systems like SAP the management have secured their future in a bureaucratic and stifling maze of paper. Change occurs in decades and centuries for an application that has no concept of a Joint Operating Committee or even what a partner is. In this day and age, when the organization is defined and supported by the software it uses it is critical that the organization be supported by a software development capability like that which People, Ideas & Objects proposes. Otherwise you set your organization in the proverbial SAP like concrete that only today’s bureaucracies are pleased with.

Economic growth is about the evolution of a complex structure (Langlois 2001). p. 6

It is in the Research & Capabilities module of the Preliminary Specification that the producer firm is able to exercise their opportunities for economic growth. By developing their capabilities and documenting them within the “Dynamic Capabilities Interface” they are able to populate these capabilities to the various Joint Operating Committees that they have an interest in. Reducing the costly experimentation of innovation yet opening up the assets of the firm to the innovations.

Economic growth is fundamentally about the emergence of new economic opportunities. The problem of organization is that of bringing existing capabilities to bear on new opportunities or of creating the necessary new capabilities. Thus, one of the principal determinants of the observed form of organization is the character of the opportunity – the innovation – involved. The second critical factor is the existing structure of relevant capabilities, including both the substantive content of those capabilities and the organizational structure under which they are deployed in the economy. p. 13

This previous quote captures so much of what we should be concerning ourselves with. I think it also shows that by using the Joint Operating Committee, and structuring the development and deployment of capabilities in the processes of the Research & Capabilities and Knowledge & Learning modules achieves much of what is discussed.

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 CCXXXVIII (R&C Part XLVIII)

We have been discussing the coordination of operations and how that is organized in the People, Ideas & Objects Research & Capabilities module. Coordination of operations is only one of the things that is carried out in the module, innovation is another. To refresh our memory, the primary process in which innovation is carried out in the Preliminary Specification is as follows.

The producer firm through its interactions with the service industry develops new and innovative capabilities that are captured and documented in the “Dynamic Capabilities Interface”. The interactions with the service industry are through a variety of interfaces in both the Research & Capabilities and Resource Marketplace modules. Using the football analogy this is the practice field where the team is developing new and innovative plays to be worked on and perfected before game day. Game day is when the capabilities are published in the “Dynamic Capabilities Interface” which enables them to be seen in all of the Joint Operating Committees that the producer has an interest in. This process enables the producer firm to eliminate the unnecessary “trial & error” learning from being repeated in each and every Joint Operating Committee. The learning can be done once, and therefore limit the cost of the innovation by reducing the unnecessary experimentation. As I stated this is the primary process of innovation.

If there was a secondary or optional process of innovation in the Research & Capabilities module it would be based on the following. This is from Professor Richard Langlois’ paper “Innovation Process and Industrial Districts”.

Innovation is based on the generation, diffusion, and use of new knowledge. p. 1

Opportunities do occur at times and in places that are not planned for. Innovation is something that frequently falls within this description.

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

To preclude the opportunities for these types of discoveries to be acted upon would leave the spontaneity out of the oil and gas industry. When faced with the knowledge that is provided to the user of the “Dynamic Capabilities Interface” some things may become obvious that were not so before. Serendipity is a word that is used in economics quite frequently. We should adopt it here to ensure that a dynamic and innovative nature of the industry is the result.

But there is more that we are doing in this secondary process then we have done in the first process. We are building on the already well established capabilities of the producer firms of the Joint Operating Committees, and, we are exposing the collective knowledge to the broader community of earth scientists and engineers of the Joint Operating Committee. This broadening of the scope of users is at the same time there is limiting of the focus to just that Joint Operating Committee. Professor Langlois notes.

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. pp. 1- 2

and

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

What is therefore needed is a means to capture innovations that arise from this secondary process. Turn them into the primary innovation process so that they can be further populated throughout the various Joint Operating Committees that the firm participates in. That will limit the amount of trial and error learning costs that might occur if each Joint Operating Committee were to field test their own innovations based on the ideas they heard from so and so...

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 CCXXXVII (R&C Part XLVII)

Today we are going to reinforce the way in which the Research & Capabilities module captures the knowledge within the producer firm. In providing for the capture of this knowledge the Preliminary Specification is limited by the attributes of the different types of knowledge and the culture of the oil and gas industry. These two forces have formed the manner in which the Research & Capabilities module deals with the knowledge and its capture. It is in Professor Richard Langlois’ paper “Chandler in a Larger Frame: Markets, Transaction Costs, and Organizational Form in History” that he states the following.

Much knowledge - including, importantly, much knowledge about production - is tacit and can be acquired only through a time-consuming process of learning by doing. Moreover, knowledge about production is often essentially distributed knowledge: that is to say, knowledge that is only mobilized in the context of carrying out a multi-person productive task, that is not possessed by any single agent, and that normally requires some sort of qualitative coordination - for example, through direction and command - for its efficient use. p. 359 

We’ve discussed before that the tacit knowledge can not be captured within any written form. Therefore the “Dynamic Capabilities Interface” can only refer to the tacit knowledge held by others. The tacit knowledge is deployed in the Research & Capabilities and Knowledge & Learning modules through the Job Order system. Since it is knowledge that “normally requires some sort of qualitative coordination - for example, through direction and command - for its efficient use.” There are three critical elements for coordination of operations in these two modules of the Preliminary Specification.

• The Knowledge captured in the “Dynamic Capabilities Interface”.
• The “Planning & Deployment Interface” including AFE’s and Job Orders.
• The Military Command & Control Metaphor.

Therefore the interface elements of the “Dynamic Capabilities Interface” will contain knowledge of “what” and “how” regarding production or the operation of concern. Times when the tacit knowledge needs to be documented will have to be replaced by rich media and references to the appropriate individuals for the operation to be undertaken. We should note that the knowledge is often distributed knowledge carried out by multi-person tasks. All of these tasks should be captured for one operation and included as one capability in the interface. Dealing with these different types of knowledge is how the Research & Capabilities and Knowledge & Learning modules “capabilities” are defined.

As I stated in the opening, the culture of the industry also has an influence on the design of these modules. These conditions reference the boundary of the firms and markets and determine the changes that will be needed. Since we are dealing with the service industry, and all but the smallest number of producers practice sourcing their field operations from the market. We are consistent with the culture of the industry. Nonetheless Professor Langlois notes three factors are important. Application of this framework to the methods used in the Preliminary Specification provides an understanding of the choices that were made.

1. The pattern of existing capabilities in firms and market. Are existing capabilities distributed widely among many distinct organizations, [Yes] or are they contained importantly within the boundaries of large firms? [No] 

2. The nature of the economic change called for. When technological developments or changes in relative prices generate a profit opportunity, does seizing that opportunity require a systemic reorganization of capabilities [No] (including the learning of new capabilities), or can change proceed in autonomous fashion along the lines of an existing division of labor? [Yes] 

3. The extent of the market and the level of development of market supporting institutions. To what extent can the needed capabilities be tapped through existing arrangements, and to what extent must they be created from scratch? [Existing] To what extent are there relevant standards and other market-supporting institutions? [Good] p. 360

I have answered the questions in the [ ] provided. The service industry is robust and dynamic. What is needed is for the oil and gas producers to build the interfaces described in this post. Once they have their capabilities documented and deployed in such a manner the natural evolution of the service industry will continue, although at a faster pace and with more competitive offerings.

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 CCXXXVI (R&C Part XLVI)

Our last couple of posts have highlighted the dynamic nature of the marketplace the service industry will provide the oil and gas industry. Two days ago we noted the dynamic nature of the “Dynamic Capabilities Interface” of the Research & Capabilities module and yesterday, the changing and dynamic nature of markets during times of larger societal changes. Throughout this discussion we have noted that there may be changes to the modules in the Preliminary Specification. However we have not described how many of those changes will come about. What are the motivations, why will these changes come about? In Professor Richard Langlois paper “The Vanishing Hand: The Changing Dynamics of Industrial Capitalism” he describes what could be called the “dynamic” nature of the motivation behind these changes.

Ruttan Hayami (1984) have proposed a theory of institutional change that is relevant to my story of organizational and institutional change. As they see it, changes in relative scarcities, typically driven by changes in technology, create a demand for institutional change by dangling new sources of economic rent before the eyes of potential institutional innovators. Whether change occurs will depend on whether those in a position to generate it - or to block it - can be suitably persuaded. Since persuasion typically involves the direct or indirect sharing of the available rents, the probability of change increases as the rents increase. And the more an institutional or organization system becomes misaligned with economic realities, the more the rents of realignment increase. pp. 36 - 37

That is to say all except for the bureaucrats, they may not be motivated by anything. I am shocked at the numb response the price of natural gas has received from the oil and gas companies. Only a few companies have scaled back production. The market system is sending them a signal, the price, that they are over producing. And nothing happens. This must be like what it was like in the former Soviet Union, no bread because everyone is in line waiting for bread. The bureaucrats can sit back and belittle the service industry as greedy and lazy, and that will sell for another year during annual report season. But for them to focus on their business and cut back production, never. Deaf, dumb, blind, stupid and numb.

At some point the accounting magic that is employed will cease to provide the veneer that covers the poor workmanship. Cash flow is not earnings. It is swapping money in for money out. It is not a measure of performance, it is a measure of activity. Without the high prices that are realized on the crude side of the business, where would these bureaucrats be? According to Professor Richard Langlois in “Institutions, Inertia, and Changing Industrial Leadership” there needs to be an alternative that is proposed to replace the old order.

Several features of punctuated equilibrium stand out. Firstly, it is a lengthy process. Even the revolutionary or transitionary phase, in which two or more alternatives vie for success, may be prolonged for decades, or eons in the case of speciation. Secondly, the process, like Schumpeter's: “creative destruction," is one of replacement. When there is punctuated equilibrium, the extinction of a species or discrediting of a scientific theory are not enough; there must be a new species available to take over the territory or a new theory to account for the phenomena that the old theory was once thought to explain. Thirdly, each period of punctuated change requires a behavioral shift to ensure alignment between the requirements of the new order and the actions of its agents. This shift might be accomplished internally, if the old agents adapt their behavior to meet the new conditions, or externally if they are supplanted by a new group of agents. Finally, inertia plays a central role in punctuated equilibrium by ensuring that change proceeds by fits and starts rather than smoothly and evenly. pp. 2 - 3

That alternative to the status quo is of course the Preliminary Specification. So what does all of this have to do with oil and gas systems. The road ahead is bumpy. As much as we would like to think that good ideas will win the day, that may not be the case. The old agents have some fight left in them. Just look at Russia today. Inertia will eventually fall to our side, however, not without a bit of a fight.

Inertia is the focus of this paper. As is explained in more detail below, inertia has two major functions in the cycle of punctuated equilibrium. Inertia result from, and in a sense embodies, the best feature of the stable phase of the cycle because it is based on the learning process in which producers determine which procedures are most efficient and effective. Once people are satisfied that the know how to do things well, they have very little incentive to look for or adopt new methods. In the words of Tushman and Romanelli (1985, pp. 197, 205), "those same social and structural factors which are associated with effective performance are also the foundations of organizational inertia..., success sows the seeds of extraordinary resistance to fundamental change." Inertia also provides the tension, however, that leads to the (relatively) short, sharp shock of the revolutionary period (Gould, 1983, p. 153) because the pressure required to displace a successful but inert system is considerable and takes time to accumulate. When there is little inertia, change can be assimilated in a gradual and orderly fashion, but an entrenched system may need to be vigorously displaced. p. 3

It is through the definition of the Preliminary Specification in which we achieve the point where “Once people are satisfied that the know how to do things well, they have very little incentive to look for or adopt new methods.” Then we will have the definition of the system that provides the optimal way for the innovative oil and gas industry to operate.

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 CCXXXV (R&C Part XLV)

Lets go back a bit or look at the “Dynamic Capabilities Interface” in the Research & Capabilities module from a different perspective. One in which we are looking more high level at the attributes of what we are attempting to achieve. With this perspective it should be possible to see how the Preliminary Specification relies on the dynamic service industry marketplace, and defines and supports the framework to execute field operations with military precision. This seemingly inherent contradiction is anything but. The two are fundamentally different with the field operations being a temporary snapshot of the marketplace’s offerings. Once that operation is complete, that organization for the field operations and its capabilities will never exist again. That is not to suggest that the capabilities are deleted from the “Dynamic Capabilities Interface”, its just that they do not exist in the organization that was used for that specific field operation.

We want to maintain all of the elements of a dynamic and innovative service industry. The Preliminary Specification has set out to provide for this by ensuring the service industry receives strong support from the oil and gas industry. This is also necessary for the energy industry to ensure that the demands of society, in terms of energy, are met. Once this financial marketplace recession is over the demand for energy will resume a steady pace. We have discussed many times Professors Anthony Giddens and Wanda Orlikowski theory of Structuration and model of Structuration. That people, society and organizations must move together or there will be failure. It should be asked if these societal demands for energy can be met by the current oil and gas organizations? Technology can have a role in this. From Professor Orlikowski’s paper.

Interaction with technology influences the institutional property of an organization, and this influence is more likely to be reinforcing rather than a transforming one. (p. 235 The Duality of Technology: Rethinking the Concept of Technology in Organization). 

In order to achieve the organizational performance necessary to meet societies demands, it will require the technologies to be put in place first. This was one of the key findings of the Preliminary Research Report. This same theme is picked up by Professor Richard Langlois in his paper “The Vanishing Hand: The Changing Dynamics of Industrial Capitalism”.

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

So where are we. The People, Ideas & Objects Preliminary Specification is designed to support innovative and dynamic markets that will enable the oil and gas industry to meet the surging demand for energy. But neither the surging demand nor the software exists. 10 million cars were sold in China last year. Probably the same number will be sold this year. The point is that the markets for energy are developing and the demand will grow. The question will be who will be the first to volunteer to keep their economy stagnant due to a lack of energy. And just as the markets for energy develop the software too needs to be developed.

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

There will be significant changes made to the markets during the times we are developing the People, Ideas & Objects software. Changes that will need to be captured in the software. There is never a best time in which to approach these changes, however, now might be a good time.

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 CCXXXIV (R&C Part XLIV)

We continue on with our discussion regarding the documenting of capabilities within the “Capabilities Interface” of the Research & Capabilities module. It has been a long and difficult process to detail what it is exactly that we are capturing in this interface. Capabilities are a difficult concept to quantify and qualify. Add to that difficulty is the need to keep innovation at the forefront of the producers and Joint Operating Committees capability, and the challenge ahead is well defined. We are continuing on with our review of Professor Richard Langlois’ paper “Transaction Cost Economics in Real Time” with our focus on obtaining the capabilities from the marketplace derived of the service industry offerings.

One thing that can be stated that is for certain is that the Preliminary Specification is consistent with the culture of the industry. No producer firm seeks to internalize the capabilities that are available in the free market. The capital nature of the equipment, the geographical range of operations and the skills of the people employed would require the producer to have such extensive operations that they would lose focus of the task at hand, finding and producing oil and gas reserves. Using the service industry as a market is the only choice and the manner in which People, Ideas & Objects is proposing in the Research & Capabilities module is to control the operation with what amounts to military precision.

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 what may become a naming issue, the “Capabilities Interface” has never been conceived as a static repository of information. On the contrary it is a dynamic interface where the information is constantly being changed as a result of changes in the market and the producer firm or Joint Operating Committee. These dynamic changes are reflections of the actions taken by these participants and are populated through a variety of inputs. It might be best to begin to call the “Capabilities Interface” the “Dynamic Capabilities Interface” as this better reflects the true purpose behind the interface.

A market form of organization is capable of learning and creating new capabilities, often in a self reinforcing and synergistic way. Marshall describes just such a system when he talks about the benefits of localized industry. The mysteries of the trade become no mysteries; but are as it were in the air and children learn many of them unconsciously. good work is rightly appreciated, inventions and improvement in machinery, in processes and the general organization of the business have their merits promptly discussed: if one man starts a new idea, it is taken up by others and combined with suggestions of their own; and thus it becomes the source of further new ideas. And presently subsidiary trades grow up in the neighbourhood, supplying it with implements and materials, organizing its traffic, and in many ways conducing to the economy of its materials. (Marshall, 2961, IV .x.3, p. 271) p. 120

It is the job of the producer firm in some instances and the Joint Operating Committee in most instances to effectively and efficiently coordinate and control the operation. The capabilities available from the marketplace must be the most up to date. In an Information Technology environment in which we find ourselves these days, that is not the issue. Having the people involved on the same page, understanding the proper command and control structure, the means to execute the operation and the appropriate objective is the issue. And that issue is handled in the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification. Yet at the same time, because we are relying on the market, and are structured for innovation we can still rely on the benefits of both.

In this sense, the ability of a large organization to coordinate the implementation of an innovation, which is clearly an advantage in some situations, may be a disadvantage in other ways. Coordination means getting everyone on the same wavelength. But the variation that drives an evolutionary learning system depends on people being on different wavelengths - it depends, in effect, on out-breeding. This is something much more difficult to achieve in a large organization than in a disintegrated system. Indeed, as Cohen and Levinthal (1990a, p. 132) point out, an organization experiencing rapid change ought in effect to emulate a market in its ability to expose to the environment a broad range of knowledge gathering 'receptors'. p. 120

and

"Vertical integration, I argued, might be most conducive to systemic, integrative innovation, especially those involving process improvements when demand is high and predictable. By contrast, vertical integration may be less desirable - and may be undesirable - in the case of differentiation or autonomous innovations. Such innovations require less coordination, and vertical integration in such cases may serve only to cut off alternative approaches. Moreover, disintegration might be most beneficial in situations of high uncertainty: situations in which the product is changing rapidly, the characteristics of demand are still unknown, and production is either unproblematical or production costs play a minor role in competition. In such cases the coordinating benefits of vertical integration are far outweighed by the evolutionary benefits of disintegration." pp. 120 - 121

If running a successful oil and gas company was easy everyone would be doing it. We certainly are moving into a challenging time for a challenging business. Those that want to step up are going to need to have the organization defined and supported by the software the firm and Joint Operating Committee uses. Software like People, Ideas & Objects Preliminary Specification.

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

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

The Preliminary Specification Part CCXXXIII (R&C Part XLIII)

We continue on with our review of Professor Richard Langlois’ research in this our fourth pass through the Research & Capabilities module of the Preliminary Specification. The last few posts may have been a little confusing in that the focus might have appeared to be on the Knowledge & Learning module with the strong Joint Operating Committee focus. That is one of the possibilities with these specifications being so close in terms of their functionality. Recall too that the “Capabilities Interface” which is detailed in the Research & Capabilities module is populated into the Knowledge & Learning module for deployment purposes. This confusion between the modules will appear from time to time and is otherwise unavoidable and immaterial.

It is in the “Capabilities Interface” that we are seeking to document the “what” and “how” of the operation the Joint Operating Committee will undertake. It is very important to note at this point that the tacit knowledge that makes up that operation can not be documented. It will however be invoked through the orders in the Job Order system. The depth of “knowledge, skills and experience” that is documented in the “Capabilities Interface” includes the members of the Joint Operating Committee, their roles and responsibilities, and the field operations personnel. Detailing what and how they need to do their jobs in order to attain the objective of the operation. In a paper entitled “Transaction Costs in Real Time” Professor Langlois notes:

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.

That’s an effective way to state what it is that we are trying to achieve here. The “Capabilities Interface” is a how-to database of capabilities the firm has for getting things done. Or;

'Routines,' write Nelson and Winter (1982, p. 124), 'are the skills of an organization.' p. 106

Now here is the point where we need to pay attention. Both figuratively and literally. In this post as well as in any and all oil and gas field operations. The ability to do any of these tasks on auto-pilot doesn’t exist. And the implications of the next quotation is far reaching.

Such tacit knowledge is fundamentally empirical: it is gained through imitation and repetition not through conscious analysis or explicit instruction. This certainly does not mean that humans are incapable of innovation; but it does mean that there are limits to what conscious attention can accomplish. It is only because much of life is a matter of tacit knowledge and unconscious rules that conscious attention can produce as much as it does. p. 106

It will need to be the explicit instruction contained within the “Capabilities Interface” that guides the field operation. The conscious attention necessary to follow the program is a necessity. However, this is also about innovation. If there is an opportunity for further innovation. There is the Job Order system in which to invoke the request for a change in orders.

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

One thing I can say for certainty is that the technology begins with People, Ideas & Objects. By developing the Preliminary Specification the producers will be able to attain the level of innovativeness and operational control that is described in these posts.

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 CCXXXII (R&C Part XLII)

We move on from modularity to discuss “Dynamic Transaction Costs” in the Research & Capabilities module of the Preliminary Specification. We have discussed these costs in other modules and have dealt with them by establishing an account in the chart of accounts to specify these costs when they are incurred, where ever they are incurred. They are particularly relevant to the discussion in the Research & Capabilities module as Professor Langlois describes them as;

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

Constructing a temporary operational organization that is derivative of the Joint Operating Committee and populated with the service industry representatives based on the capabilities established in the “Capabilities Interface” of the Research & Capabilities module. May incur “Dynamic Transaction Costs”. We are looking for an increase in economic performance from the oil and gas industry. In order to achieve that higher level of performance we expect the division of labor and specialization to be strong elements of how that increased performance is achieved. Having the coordination and organization constructed in the “Capabilities Interface” is how the oil and gas producer will achieve these higher levels of performance.

It is, Marshall says, a general rule, to which there are not very many exceptions, that the development of the organism, whether social or physical, involves an increasing subdivision of function between its separate parts on the one hand, and on the other, a more intimate connection between them. Each part gets to be less and less self sufficient, to depend for its well being more and more on other parts... This increased subdivision of functions, or "differentiation," as it is called, manifests itself with regard to industry in such forms as the division of labour, and the development of specialized skill, knowledge and machinery: while "integration," that is, a growing intimacy and firmness of the connections between the separate parts of the industrial organism, shows itself in such forms as the increase of security of commercial credit, and of the means and habits of communication by sea and road, by railway and telegraph, by post and printing press. (Marshall, 1961, IV.viii.1 p.241).

So in essence we have two major processes that will incur dynamic transaction costs. One is the move from the firm to the Joint Operating Committee as the coordinator of the operations. And secondly, the enhanced division of labor and specialization bringing a further “subdivision of function between its separate parts”. Therefore it is necessary to capture the role and responsibilities of everyone involved in the operation to ensure that the tasks are completed with the objective in mind. And that includes the lease hands on the drilling rig and the water hauling driver. It will be this level of operational control that provides the Joint Operating Committee with the successful operations they seek.

Economic progress, then, is for Marshall a matter of improvements in knowledge and organization as much as a matter of scale economies in the neoclassical sense. We can see this clearly in his 'law of increasing return,' which is distinctly not a law of increasing returns to scale: 'An increase of labour and capital leads generally to improved organization, which increases the efficiency of the work of labour and capital' (Marshall, 1961, IV. xiii,2 p. 318) p. 101

It might be argued that the lack of operational organization that is exercised by the oil and gas company today. That is resulting in the conflict between the oil and gas companies and the service industry. Leading to the cost overruns. Is as a result of the lack operational organization. And if Marshall is correct, of which he has over a century of proof, then the solution will require an advanced organizational construct. And in oil and gas that must involve the Joint Operating Committee the legal, financial, operational decision making, communication, cultural, innovation and strategic framework of the industry.

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.