The Preliminary Specification Part CCLXXVII (S&AC Part VII)

It has been a while since we wrote anything specific about the Security & Access Control module of the Preliminary Specification. It is maybe a generic module that has a fixed level of functionality and process management in comparison to the other modules. Our review to date has been about innovation and organizational change. And these topics have not necessarily been consistent with what Security & Access Control are all about.

In reviewing the posts to this point I want to highlight a few of the things that have to be the important features of the module. We are providing the Security & Access Control to the right people, who have the right access to the right information with the right authority at the right time and at the right place. What we know about relational databases, that they are based on predicate calculus and set theory, makes them ideal for enabling this access in the context of the Joint Operating Committee.

It is in the Security & Access Control module that the Military Command & Control Metaphor is established. That is the chain of command between the individuals from within the producer firm, the Joint Operating Committee and the service industry representatives. Each individual is provided with a rank level of “command” and is provided with established authority and responsibilities as a result. Lower ranks are also within the chain of command of higher ranks. This ranking and command structure provides the ability to have the pooling of the earth science and engineering, as well as other, resources pooled between members of the Joint Operating Committees.

We noted that the types of data that the producer firm and the Joint Operating Committee were dealing with were different in terms of their security requirements. Joint Operating Committees were dealing in data that was shared amongst the partnership and was not necessarily proprietary in nature. On the other hand the producer firm is where most of the proprietary information is held. The reserve reports, accounting information and strategy, and internal communications. This provides a separation of data from the domains of operation.

Authentication, and having the ubiquitous availability of anywhere and anytime access are issues that are needed to be addressed by advanced ERP systems. Secure access through iPad’s and phones brings about new challenges for producers and Joint Operating Committees. Encryption of all network traffic, and storage of data are necessary in this day and age. For compliance purposes a proposed ownership structure of the “cloud computing” infrastructure that meets the needs of the producers SEC requirements has been provided.

The Security & Access Control module will provide an interface that provides the appropriate governance requirements are met by the organization. If you have a requirement that a process is reviewed by certain individuals within your organization then they can be mapped within the organization. Any gaps could be filled and the process could then proceed. There is also the ability to have the delegation of authority and responsibilities assigned during absences.

This is a quick summary of the content of the Security & Access Control module of the Preliminary Specification. Now that we are reviewing the Oracle technologies, strategies and architectures we will be able to blend these requirements into their products and services and give users a better understanding of how these technologies will be implemented. The one area that will be unique is going to be the Military Command & Control Metaphor. However, as we will see that may not be technically too difficult to do.

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 CCLXXVI (General Part V)

Before we begin our fifth pass through the modules of the Preliminary Specification I wanted to discuss the overall technological architecture that People, Ideas & Objects will be using the Oracle products for. There are also some other points of discussion that I wanted to raise in this post.

The first point of discussion is the fact that People, Ideas & Objects does not currently have a relationship with Oracle. I have had comprehensive development agreements with Oracle before and will not be going down that road again. Oracle does not have the patience necessary for this marketplace. Theirs is to book quarterly revenues, not to convince industries for the need for change. When we do establish a relationship with Oracle it will be when People, Ideas & Objects have achieved revenues and Oracle will look upon us as a customer.

With the recent acquisition of Sun Microsystems Oracle is now the owner of the Java Programming Language. This in combination with their industry leading Database, they provide us with the base tools to implement the Preliminary Specification. No other technologies can provide the scale and scope of performance and reliability that the oil and gas producer and Joint Operating Committee need to operate their business. Add to these base technologies is Oracle’s hardware engineering and integration for database and Java technologies, and we will have the least concerns possible in terms of what the technological marketplace can offer.

Recently Oracle conducted a comprehensive investment to update and integrate their ERP offerings under one solution. These come under the Oracle “Fusion” brand of offerings. The first and possibly the most important, especially from the point of view of the Preliminary Specification is the Oracle Fusion Middleware. This is their Java Enterprise Server technology. All of their Fusion ERP application are derivative of the Oracle Fusion Middleware technologies. That is an important consideration for us as will be noted later. What the Oracle Fusion Middleware provides People, Ideas & Objects is access to the base layer of Java to build the Preliminary Specification function, process and applications. Modules of the Preliminary Specification could be complete stand alone components without any of the Oracle code from the Fusion ERP applications. That being stated, they can also be fully integrated into the Oracle code of the Fusion ERP applications. So when we need to include an accounting general ledger we can include the Oracle Fusion Accounting Hub as the key component of the Partnership Accounting module and build the unique oil and gas elements within that base Oracle technology. This level of integration marries the best of the technology with the best of the understanding of the oil and gas industry.

The Oracle Fusion Applications are the result of a significant investment by Oracle. They came to market in 2010 and are based on the same base technologies we are using, Java and the Oracle Database. As time passes this new breed of technologies will begin to outperform those technologies that have been in the marketplace for several generations. They are also the technologies that will be best positioned for the so called “cloud” computing model. Something that is a fundamental aspect of the People, Ideas & Objects offering.

One thing that I think will show as a result of this fifth pass through the Preliminary Specification. Is that specialization and the division of labor has created large gaps between the oil and gas industry and Oracle. Gaps that need to be filled by People, Ideas & Objects. Tomorrow we will begin with a look at the Security & Access Control 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 CCLXXV (General Part IV)

Four full passes through the Preliminary Specification have provided some substantial codification of the way this software will operate. From the eleven modules there is an overall vision of how the innovative oil and gas producer, and the Joint Operating Committee would function in the insatiable energy demand era. I had two comments made to me when I wrote the Preliminary Research Report. The comments were that “this solves every administrative issue in oil and gas for the past fifty years” and “it's an entire new discipline”. Both were related to the significance of using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. What I think that we can say as a result of completing the four passes through the Preliminary Specification is that both of these comments underestimate the significance of using the Joint Operating Committee.

What we have discovered is that it certainly resolves the administrative issues when the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks are aligned with the compliance and governance frameworks. However, when it comes to the operational concerns of the oil and gas industry, it also provides the frameworks and means to solve those problems as well. Whether it is the ability to agree amongst the partnership and reduce the production during price declines, or moving the industry to a decentralized production model, where the costs more accurately match the revenues. Or where the innovation is generated through the two major processes in the Preliminary Specification, which do not directly conflict with tight operational control. Or how the division of labor and specialization are enabled, defined and supported through the software to provide for the industry to expand its output of the limited resource base of earth scientists and engineers. These are just some of the features of the Preliminary Specification that impact the operations and enable the producers to enhance their organizations. And although they have been used to highlight today's issues they will also provide for tomorrow's problems.

Bold statements and evidence to prove that I am one of two possible things, as people would say. But the fact that the Joint Operating Committee supported in the fashion that is identified in the Preliminary Specification also provides us with this opportunity to build these systems. This vision needs to be acted upon and the forces that are aligned against it are as determined not to see it exist. They have a vested interest in the status-quo and will continue to fight to ensure theirs is the only alternative.

We turn now to the fifth pass through the Preliminary Specification. And this will continue on with the module by module review, however this time it will be from the basis of Oracle Corporation’s technology. If you read or review any of their material it has a decidedly technological focus. If you mention the Joint Operating Committee within their organization you can hear it echo for a week and a half. They really have no fundamental understanding of oil and gas, and only a basic understanding of business. They have become very specialized in what they do and the products they sell. Such is the nature of the division of labor and specialization. What People, Ideas & Objects are therefore doing is filling a “gap” in providing the business understanding of the oil and gas industry to the technology. This “gap” between the oil and gas industry and Oracle is something that is needed because the two are unable to speak coherently to each other, they need an interpreter, and that’s People, Ideas & Objects and the Preliminary Specification.

So tomorrow we’ll begin with the Oracle technologies in general and build out from there.

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 CCLXXIV (C&G Part XXIII)

We have been concerned with the governance over operations in the last number of posts. And today we look into the governance over the two major processes of innovation in the Preliminary Specification. The first process of innovation is the development of the innovation within the producer firm and is a result of the earth science and engineering capabilities being developed. The second process is as a result of the field level innovations that are developed by the service industry and are either product or service related in terms of their offering to the producer or Joint Operating Committee during some operation. Either way it is important that the producer firm have a measure of governance over the developments of innovation for a variety of reasons. These governance elements will again be captured in the “Operational Review & Governance Interface” of the Compliance & Governance module. Quotes are from Professor Richard Langlois paper “Innovation Process and Industrial Districts”.

What is it that the innovative oil and gas producer and Joint Operating Committee will be doing when they are “innovating”. That seems to be a fairly reasonable question and one that would be the founding principle in which the governance over the innovating processes should be based on. It's here that Professor Langlois provides us with a very good summary for our purposes.

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

The source of this new knowledge, and all of the knowledge is the “Dynamic Capabilities Interface” in the Research & Capabilities and Knowledge & Learning modules. Recall that “knowledge begets capabilities, and capabilities begets action”. The capabilities that are contained within the “Dynamic Capabilities Interface” are comprehensive and are designed to serve the needs of all of the people that are required for that particular operation.

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

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

I could go on for ever reciting the elements of the Preliminary Specification as the reasons for the governance requirements in the “Operational Review & Governance Interface”. The point that needs to be made is that the two major processes of innovation need to be reviewed from a high level within the firm. There are so many interactions between the firm and the Joint Operating Committee and the larger service industry that the possibility that all of the valuable knowledge is not all codified is high. That is just one of the risks. Another is that the “Lessons Learned Interface” doesn’t capture the failures accurately for further learning. These are all necessary to have someone review to ensure that the knowledge and capabilities, as well as the innovations are built upon for the future.

And with this final post on Professor Richard Langlois we move on to our fifth pass through the Preliminary Specification. I'll have a few general things to say tomorrow to wrap where we are and where we are heading.

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 CCLXXIII (C&G Part XXII)

Within the Preliminary Specification there is a conflict or contradiction that needs to be managed through the Compliance & Governance module. That is the posture that needs to be presented by the people who are members of the Joint Operating Committee towards the service industry representatives. At two different times and two different places during the ongoing operation of the properties the approach towards the service industry will be fundamentally different. At one time the approach will be to have the service industry operate as a free wheeling marketplace where the innovation and ideas are flowing at the fastest possible rate. And then there will be the times when the operations are being conducted and the need for military precision is expected and required to ensure the operations are completed successfully. This Dr. Jekyll and Mr. Hyde routine would give most people in both the Joint Operating Committee and the service industry a second look.

We have discussed this contrast in the Preliminary Specification before. On the one hand we have a marketplace and on the other we have operational control. And for many reasons the two may be comprised of the same people operating in different capacities at different times. The governance issue is; how do we ensure that the operating mode, marketplace or operational control, is the appropriate mode that everyone is operating under. This is of particular concern to the service industry representatives, as so much of the operational control and success of the operation is dependent on their full attention.

The answer to this question comes from the “Operational Review & Governance Interface”. If there is an operation that is currently being conducted by the Joint Operating Committee. And there has been no corners cut or short cuts taken then there will be the explicit knowledge contained in the “Dynamic Capabilities Interface”, the “Planning & Deployment Interface”, assignments under the Military Command & Control Metaphor which will include representatives of the service industry, the AFE, and Job Order. Whereas none of these are required in the marketplace. Therefore the onus is on the Joint Operating Committee to ensure that these tools are used to ensure that the contrast from a freewheeling marketplace is imposed. And it will be in the “Operational Review & Governance Interface” that the governance over the members of the Joint Operating Committee is imposed to ensure they are using these tools appropriately during their operations.

Operational control and innovation are on two opposite ends of the same spectrum. That however does not mean that they can’t be attained by the same organization. The innovative oil and gas producer must have both. One without the other is not worth pursuing. The conflict and contradiction will show up in the organization at some point and the need to deal with it becomes a governance issue. The user of the “Operational Review & Governance Interface” will have the tools necessary to ensure that the Joint Operating Committee is able to discern the difference between innovative markets and tight operational control.

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 CCLXXII (C&G Part XXI)

We have asserted and I am certain that it is generally agreed that the oil & gas industry is moving towards its scientific basis as its primary form of competitive advantage. The days in which financiers or lawyers could build viable producers based on their skills are numbered if not nonexistent. There is also a perception that is developed through the Preliminary Specification that the producer is a firm that maintains financial interests in a variety of Joint Operating Committees. That the producer will deploy their capabilities to these assets when and where they are needed and as the capabilities are developed. These processes are under constant levels of change and innovation in the innovative producer which causes “Dynamic Transaction Costs” to be incurred, and for people to question the direction of the changes. What is needed is a method of governance in the Compliance & Governance module over the overall process of change to ensure that the ship maintains its course and the costs remain in line. Quotations are from Professor Richard Langlois “Transaction Costs in Real Time” paper.

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

The other day we introduced the “Operational Review & Governance Interface” and today’s post will continue with its discussion. In our previous post we had the ability to mentor the Project Manager and oversee or supervise the operation if required. What we need to discuss today is broader and more global in scope. An interface that encapsulates the entire firm's operations so that the user can see that the direction the firm has taken in terms of capabilities development is being optimized in its Joint Operating Committees, etc. It would be of little value if the firm was expending valuable resources on developing its capabilities on fracing when none of the Joint Operating Committees were deploying, or able to deploy the technologies.

With the “Operational Review & Governance Interface” the user would be able to review the entire operation as it happened. From the “Dynamic Capabilities Interface” to the “Planning & Deployment Interface”, AFE, Job Order and “Lessons Learned Interface”. Review all of the actions taken and the documentation that was generated during the operation to determine what was the critical cause of the success or failure of the operation. This could be done in fine detail or in summary form to oversee the many operations that may have been conducted.

Another variable that is being captured by the Preliminary Specification is the “Dynamic Transaction Costs” themselves. These are the costs associated with change. When people run into these costs then they will know to code them to the Dynamic Transaction Costs account in the chart of accounts. This will be a red flag in the “Operation Review & Governance Interface” for the user to trigger on. When they see high levels of “Dynamic Transaction Costs” then they know the operation ran in to high levels of change and / or innovation. Therefore they will be able to see the implications of these costs in the knowledge and information in the interface. And know that either some significant change or innovation was the result.

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 CCLXXI (C&G Part XX)

We are discussing the operational governance of the firm and Joint Operating Committee. An important element of this discussion is the capabilities that these organizations have access to. Capabilities are documented in the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification. And are one of the key competitive advantages of the innovative oil and gas producer. Therefore from a governance point of view these capabilities need to be safeguarded and ensure that they are kept for your firms eyes only. Nothing could be further from the truth. The use of these capabilities will cause their leakage to outside firms. And it is imperative that the firm consider the use of their capabilities as having the right information deployed by the right people at the right time. The Compliance & Governance module will therefore be more concerned with the appropriate use of the capabilities, rather than the hoarding of information. From Professor Richard Langlois “Organizing the Electronic Century”.

"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

What is it that we are trying to achieve in employing these capabilities. It is of course to generate value. But more importantly to generate value on behalf of the owners represented in the Joint Operating Committee. In economic terms this value is called “externalities”. After the operation, after the deployment of the right capabilities at the right time by the right people the value should have been gained by the members of the Joint Operating Committee.

So why don't we observe everywhere a perfectly atomistic modularization according to comparative advantage in capabilities - with no organizations of any significance, just workers wielding tools and trading in anonymous markets? We have already seen the outlines of several answers. The older property rights literature, we saw, would insist that the reason is externalities, notably the externalities of team work arising from the nature of the technology of production itself. The mainstream economics of organization is fixated on another possibility: because of highly specific assets, parties can threaten one another with pecuniary externalities ex post in a way that has real ex ante effects on efficiency (Klein, Crawford, and Alchian 1978; Williamson 1985). Richardson offers a somewhat different, and perhaps more fertile, alternative. Firms seek to specialize in activities for which their capabilities are similar: but production requires the coordination of complementary activities. Especially in a world of change, such coordination requires the transmission of information beyond what can be sent through the interface of the price system. As a consequence, qualitative coordination is necessary, and that need brings with it not only the organizational structure called the firm but also a variety of inter-firm relationships and interconnections as well." pp. 27 - 28

If the Joint Operating Committee coordinates these capabilities in the appropriate manner then the externalities will flow to the producers represented there. That is what the governance of the operation is most concerned about. That there was leakage of some documentation of these capabilities during the operation is immaterial to the externalities and the competitive position of the firm. Recall during our review of Professor Giovanni Dosi for the Preliminary Specification. His research showed that it took an equal and sometimes greater effort to copy another firm's capabilities then it did to generate the capabilities themselves. It is therefore more effective for a firm to focus on their key competitive advantages of their land and asset base, and their earth science and engineering capabilities. And the effective and efficient deployment of these competitive advantages on a “just in time” basis.

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 CCLXX (C&G Part XIX)

What I am seeing develop with our review of Professor Richard Langlois writings. Is that there will be an element of the Preliminary Specifications Compliance & Governance module that will be devoted to what we would call “operational governance”. Today’s post will discuss the incentives vs. coordination issue of any operation that a Joint Operating Committee undertakes. This deals with the current conflict between the producers and service industry and the high costs associated with any field operation. Producers feel that the costs are out of control in the field and are imposing cost controls in an effort to manage them. People, Ideas & Objects feel that coordination of the field operations will provide the appropriate means to control costs and will also provide for better outcomes. The coordination coming about through the modules in the Preliminary Specification, specifically the Research & Capabilities and Knowledge & Learning. In his paper “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization” Professor Richard Langlois states.

More generally, we are worried that conceptualizing all problems of economic organization as problems of aligning incentives not only misrepresents important phenomena but also hinders understanding other phenomena, such as the role of production costs in determining the boundaries of the firm. As we will argue, in fact, it may well pay off intellectually to pursue a research strategy that is essentially the flip-side of the coin, namely to assume that all incentive problems can be eliminated by assumption and concentrate on coordination (including communication) and production cost issues only. p.17

Let's assume for a moment that the People, Ideas & Objects Preliminary Specification is operational in your firm. You have the Military Command & Control Metaphor, the Planning & Deployment Interface, the AFE and Job Order systems operational as expected however your results continue to disappoint and the cost overruns are tragic. How do we ensure that the performance expectations are met and these poor performing situations are identified quickly and dealt with.

Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of co-operating individuals. p. 17

We should have an interface in the Compliance & Governance module that provides a user with the ability to oversee the operations being conducted in the Research & Capabilities and Knowledge & Learning modules. This interface should be called the “Operational Review & Governance Interface” and give its user access to the operational information that is being undertaken. There they can interact, if desired, and supervise or mentor the project manager to ensure that the objectives are met and the costs are maintained. All with the understanding of how these objectives can be achieved. And that is through enhanced coordination, not through incentives.

In saying this, it's more about governance then about supervision. You want to be able to effect change when things go wrong, and you want to identify when things go wrong quickly, however, you also don’t want to interrupt the day to day operations.

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 CCLXIX (C&G Part XVIII)

One of the key changes that is made in the Preliminary Specification is the move away from the “high throughput production” model to the “decentralized production” model. We have discussed this throughout the various modules and now we want to discuss the governance aspect of producing oil or gas when it is known to be unprofitable. Through the changes that we have made in the Preliminary Specification. Shutting in of production causes the production and overhead costs to drop in line with the revenues from the well so that a lack of production does not create a loss. Producing at low price scenarios does however a create a loss. Therefore the firm should have in the Compliance & Governance module a strong governance model that enforces a discipline to ensure that production is curtailed when pricing drops below the margin. Professor Richard Langlois defines the two models in his book “The Dynamic of Industrial Capitalism: Schumpeter, Chandler and the New Economy.”

In a world of decentralized production, most costs are variable costs; so, when variations or interruptions in product flow interfere with output, costs decline more or less in line with revenues. But when high-throughput production is accomplished by means of high-fixed-cost machinery and organization, variations and interruptions leave significant overheads uncovered. p.58

The amount of value that is destroyed during times when the natural gas or oil prices decline is significant. The response of the North American producers to this “phenomenon” is both amusing and startling. They have within their power to fix the situation, yet do absolutely nothing to mitigate the source of the problem or the severity of it. They are natural gas producers, don’t bother them with prices or pipelines or customers, or for that matter the business of the business. This is management’s way of listening to the market and acting accordingly.

What is needed is a new method to deal with the volatility in the oil and gas marketplace. This is only the beginning of price variances. The producers need the ability to curtail production when the prices drop below the margin as is proposed in the Preliminary Specification. This may run against the best interests of those that are charged with operating the firm. And therefore the decision may need to be made by those that are responsible for the governance of the firm. If you can limit the losses. Save the reserves for the day in which the prices will return a profit. The periods in which losses will occur will be less frequent and of less intensity.

But let's look at the larger picture. If everyone in the industry adopted this new discipline then there would be no downward spikes in pricing. If all of the marginal production was removed from the market, the prices would respond to the upside almost immediately. Placing a floor on prices at the higher costs of production. Producers like to think they have employed a high level of capital discipline in terms of their spending. What if they employed a high level of production discipline as well. Then they could assert that they were not reckless in incinerating capital through operating losses in the fashion the capital markets have come accustomed to.

In the Petroleum Lease Marketplace module we have the “Marginal Production Threshold Interface” which indicates which production is at the threshold of becoming marginal or is not earning a profit. In addition this is a collaborative interface that allows the producer to interact with the other participants in the Joint Operating Committee who collectively hold the decision rights to suspend production. It is there that the decision will be made. We will also establish an interface in the Compliance & Governance module and also call it the “Marginal Production Threshold Interface”. It will include a section where the CEO or COO has the authority, in cooperation with the partners in the Joint Operating Committee, to shut-in some production. Taking the decision out of those in operations and placing it in the executive is probably how most of the decisions will have to be made. It certainly isn’t being done in any form or fashion today is 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 CCLXVIII (A&S Part XV)

When users are in the Performance Evaluation and Analytics & Statistics modules they will be able to look at a new type of cost that we have recorded in the accounts of the firm and Joint Operating Committee. That is the costs associated with “Dynamic Transaction Costs” which are the unique costs that are incurred during times of change. Professor Richard Langlois described these costs in his article “Transaction Cost Economics in Real Time”.

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

The types of these costs will be varied and not necessarily be the same in all instances. To break these down into their types may be overkill from an accounting point of view when just putting them into an account called “Dynamic Transaction Costs” will do. And we have done that in all of the other modules of the Preliminary Specification. However, having the ability to further analyse these costs when the time comes, from the Performance Evaluation and Analytics & Statistics modules could lead to further insight and learning into the organizational changes that might, or should, be occurring.

Indeed, in cases in which systemic coordination is not the issue, the market may turn out to be the superior institution of coordination. In general, the capabilities view of the firm suggests that we look at firm and market as alternative and sometimes overlapping institutions of learning. p. 99

and

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

And maybe we need to have a page or screen in each of these two modules dedicated to breaking down these costs. Then a producer or Joint Operating Committee will have some point of reference to determine the state of change and its impact in terms of the costs, and types of costs, to the organization.

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

Tomorrow we will begin our fourth or capabilities pass through the Compliance & Governance module.

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

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