People vs. Computers

In yesterday’s post we discussed the shifting of the cost control from the producer firms to the service providers on the various overhead costs incurred in oil and gas operations. Within that discussion was the role of software automation as one of the means to control those costs. Some may think or believe that that diminishes the role that people will have in the administration of the oil and gas producer, and that computers will be relied upon to a greater extent than they are currently. And I suggest that we certainly hope so.

One of the areas that People, Ideas & Objects Preliminary Specification deals with is the division of labor between the people and the computers. Leaving the mundane storage, processing and process management tasks to the computers and freeing the people to pursue the higher end tasks that will grow in the future to take a larger percentage of our time. If we don’t begin to deal with this division of labor in a more appropriate manner, then we are going to be left with the lower level tasks of the mundane and be swamped with the trivial and obscure. This is a choice that we have to make, and I think it is a conscious choice where we make the handoff to the systems for their management of greater volumes of work to free ourselves for the difficult work ahead.

And we can see that the marketplace needs these skills already and the ability for the people to fill them is limited due to the mundane aspects of the business slowing us down. The type of skills that are needed are leadership, thinking, research, innovation, the creative aspects of the business, developments of the earth science and engineering aspects of the business, collaboration and many others. The only way these are going to be enabled is that the business of the business is being taken care of in a way that is efficient and effective.

Now some may argue that all is fine and would take offense to many of the points that are made in this blog. I don’t see it that way when you put the future of the industry into context. Examples of the manner in which the natural gas business is currently handled are indicative of an inability to change, of an inability to respond to markets. We have seen industry after industry disintermediated as a result of technology. I would suggest that People, Ideas & Objects is disintermediating the oil and gas industry with the Preliminary Specification. We have seen what happens to those that try to stand in the way of the technology that is disintermediating an industry. I think our appeal to the investors of the oil and gas industry, based on the opportunity costs presented by the Preliminary Specifications business model are compelling.

And there’s value in moving to this new business model / future. With the calculated opportunity costs of an additional $67 billion of profits for North American producers. Bringing their profits for 2012 to $213 billion makes this transition not an exercise for the purpose of technology. It is for the business. To make the business more profitable and efficient and effective for all concerned. What will the situation be like in 2020, or in 2030. Will the bureaucracy still be flat footed in its response to another dip in commodity prices? Or will we have the wisdom to take control of our future and deal with it in an appropriate manner.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

The Shifting Costs to the Service Provider

When we look at a scenario such as the one that we listed yesterday. Where the need to shut-in production for the summer months was necessary to mitigate the losses on the property. One might argue that the costs or the burden is being shifted from the oil and gas producers to the service providers who provide the royalty administration and other services to the industry. This post discusses that point and shows that in a dynamic and profitable industry, these costs need to be variable and the service providers remain flexible to the demands of the producers.

First of all lets put the situation in some context. The amount of production that needs to be shut-in throughout the year may be as little as 10%. Operating at full capacity 100% of the time is the anomaly. Service providers will need to plan for this in their budgets and govern themselves accordingly. Savings can come from the ability to organize themselves in a more efficient and effective manner based on the tools of software automation, specialization and the division of labor.

By specializing on the process across the oil and gas industry the service provider will be able to leverage these benefits over a broad scope and scale. Subtle improvements to productivity and effectiveness will generate substantial benefits to the industry when applied to the client base of the service provider. The further division of labor will provide these improvements but they will also enhance the quality of the service.

What People, Ideas & Objects provides with the Preliminary Specification is a software development capability. When industry uses this capability to enhance the software, such as through its service providers expanded specialization and division of labor. It enables the innovation and dynamic nature of the earth science and engineering capabilities within it. The business of the business of the oil and gas industry can be an enabler or a constraint to the science of the business, with the Preliminary Specification it is designed to be an enabler.

In the past when someone wanted to change part of an ERP system, well they’ve learned better not to ask. The systems have become concrete that have locked the organization in a status that is unmovable and inflexible. In order to change an organization you must first of all change the software that defines and supports the organization. With People, Ideas & Objects we provide a software development capability for this purpose.

In the service provider example we have been discussing if they wanted to make a change to the software it can be easily accommodated for a variety of reasons. First of there will probably be one or maybe a small number of service providers of the software that calculate royalties for producers. Specializing in the Railroad Commission of Texas would, I think, be a single vendor pursuit. Therefore to make the change you are only changing one installation. Secondly, you are making the change for the entire user base. Therefore the efforts will be of value to all those that deem some value from the service provider and the People, Ideas & Objects services. There would be no need to go around and make changes to hundreds of installations and train staff within each producer company. To make these changes People, Ideas & Objects focus would be on the service provider. And since the service provider originated the requested change, the demand for training will be diminished.

So yes, there is a shift of the costs of overhead from the producers to the service providers. However, the service providers are able to deal with those costs. They have at their disposal a variety of tools to deal with these costs and a means in which to control them.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Seasonal Earnings in Oil and Gas Properties

What if natural gas prices remain somewhat marginal in North America for the next few years? Will the bureaucracy continue to produce at capacity irrespective of the impact to the producers earnings potential? I think after 2012 we know the answer to that question. The bureaucracy doesn’t care whether the shareholders make a competitive return on their investment, just that they make a return. As long as the bureaucracies salary and retirements are maintained for another year, that’s the big issue as far as anyone should be concerned about. So if the natural gas prices should dip below the marginal costs for three or four months of the year, each and every year, that’s just something that the shareholders will have to learn to live with. That’s the nature of the business the bureaucracy will say. And I say that we know otherwise.

It is highly probable that the summer season will continue to see natural gas prices dip below the marginal costs for most producers. Should this mean that producers continue to take that price or should they begin to take steps to make the price more in line with what they need to maintain their business. I think they should become price maker’s and leave the role of price takers behind. That is what they could do by adopting the Preliminary Specification and building the systems that support the Joint Operating Committee.

Lets look at a likely scenario that a property produced the same volume each month of the year. During eight months of that year the profit was $0.50 / mcf. And for four months the price dipped due to market dynamics and the property lost $0.50 / mcf. At the end of the year, at full capacity, this property only returned a profit for essentially four months as it took an additional four months to eliminate the losses incurred in the four months when prices were low. Now if the Preliminary Specification was available to be used by the producer, the four months where the prices were low would actually be shut-in and those losses would not have been incurred. Therefore the property actually produced a profit for the full eight month period as there were no losses that had to be offset.

This scenario of price volatility is highly likely. Producing at capacity throughout the year will be looked upon as an anomaly in a few years time. The reason it’s done today is to offset the high overhead costs in the “high throughput production” model employed by the bureaucracy. No matter what the volume of production, the overhead that is incurred remains the same high value, no matter what. This model has met the end of the road in terms of its practicality and purposefulness. There are no more efficiencies that can be obtained from the model. They were all obtained in 1966. It requires a producer to be proficient and specialized in every aspect of administrative minutiae and yet unable to realize or use that knowledge other than to their own small sample of administrative tasks. This is replicated hundreds of times in the offices next door without any benefit or value being generated for anyone other than the bureaucracies and the pension plan managers.

The Preliminary Specification would have the specialization and division of labor develop from that point in 1966. Take for example a service provider who would specialize on one jurisdictions royalty administration. Have unique and specialized knowledge of the legislation that is the Railroad Commission of Texas they could provide their services to the many producers and hundreds of Joint Operating Committees that would subscribe to that administrative process. Having their royalty administration handled in this way would provide assurance that it was the lowest possible royalty under the legislation due to the heightened specialization of the service provider. And the administrative efficiencies provided by the division of labor the service provider could employ by applying their services across the process which was used across the industry. The added feature would be that during those four months that the property was shut-in in the scenario mentioned above. The service fee for royalty administration for the Joint Operating Committee would not be billed as their was no royalty to be processed. The same situation would be for all of the service providers that were providing services to the innovative and profitable oil and gas producers.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Revisiting Natural Gas Prices

The natural gas prices have recently been showing some strength. This strength will diminish the opportunity costs that the Preliminary Specification would have provided to the industry for 2013. The bureaucracy will use the decline in opportunity costs to assert that there is no need for change and that the status quo will provide adequate earnings to the shareholders of the producer firms. That may be the case for 2013, however what about the future of the business. Will the bureaucracy be able to meet the next challenge? Or will their flat footed approach to the natural gas prices be repeated again and again over the next few years? I think the answer to these questions are obvious and the approach, or the solution to them should be obvious.

With the prolific nature of the shale gas reserves. That is with multi-lateral fracing exposing large areas of the formation to production at the same time. Each shale gas well’s production profile is as handsome as one could imagine. Bringing on large volumes of gas to the market at any time will have an impact on the natural gas marketplace and the natural gas producers need to have a solution for this new problem. For if everyone with conventional and unconventional production produces at capacity, which is the common mode of operation in the industry, the natural gas prices will remain depressed. What is needed is for a method to remove the marginal production from the marketplace at any and all times. Even during times, such as now, when the prices are looking somewhat promising.

The Preliminary Specification provides the innovative and profitable oil and gas producer with the ability and capability to remove their marginal production from the marketplace. The Joint Operating Committee is the key organizational construct of the Preliminary Specification and the innovative and profitable oil and gas producer. It is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. Through a variety of interfaces contained within the Preliminary Specification members of the Joint Operating Committee are able to execute the operational decision to suspend production when the marginal threshold has been reached.

These decisions are made with the understanding that incurring losses on operations are contrary to good industry practices and damage the expected return on the reserves of the property. Producing at a loss is contrary to good industry practice because it causes natural gas prices, or oil prices, to decline further than they otherwise would. And the losses on operations are added to the reserves costs making the return on investment poorer and requiring the property to perform at a higher metric than what it was in order to offset the additional costs of those losses. By suspending production before the losses are incurred, mitigates the downside of the price decreases, and through use of the Preliminary Specifications “decentralized production model,” only the costs of capital are uncovered during the time the properties production is suspended.

The decentralized production model reduces the innovative and productive oil and gas producer to a smaller footprint in terms of its staff. Consisting of primarily the earth science and engineering resources, the C class executives, some legal and support staff the producer is a highly focused and science oriented producer. The remainder of the staff are reorganized across the industry on a specialization and division of labor that is focused on each individual process. Therefore a Royalty Accountant is able to specialize on one jurisdiction of royalties and apply their knowledge to a process that is specialized across the industry. The billing for their services is charged directly to the Joint Operating Committee that the royalty is attributable. The same would be for the Production Accountant who may have specialized within a local region where they and a few gas plants are located. Further there may be Revenue Accountant who specializes in butane revenues. Each of these individuals working for processes that would involve dozens of producers and hundreds of Joint Operating Committees.

The advantage of this methodology is that the producer is not carrying any of these overheads at any time. The Joint Operating Committee is being billed for the direct costs associated with the overhead item. With the specialization and division of labor focused on the process, the costs will be reduced to the lowest possible costs attainable. The real advantage is when the producers decide within the Joint Operating Committee to suspend production. None of the charges for Production, Revenue or Royalty Accounting will be incurred when production is suspended. And no charges will be made to the Joint Operating Committee during times when the property is suspended. And that would also apply for any of the other production and overhead costs that would not be incurred during a period of production suspension. Leaving the property in a state where the losses on operations would not be incurred, and the downside in prices would be mitigated.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Conclusion to the Knowledge & Learning Module

As with the Research & Capabilities module, I am very satisfied with the content of the Knowledge & Learning module. It is through this module that we are moving the knowledge to where the decision rights reside, the Joint Operating Committee. In the latter part of the modules specification we take the opportunity to isolate and berate the management of the current oil and gas companies. The bureaucracy have a unique characteristic that is easily identified and criticized. I for one am only happy to be the one that offers up the discussion. But the larger point of discussion is the war that rages between the bureaucracy that exists in every industry and the Information Technologies as represented by the Internet. As I have stated I’ve placed my bet on who will win this war, as I would suggest everyone else should determine which side they are on.

The role of software in society is becoming more pronounced. We are still in the beginning stages of what can be done. For an industry such as oil and gas to continue on without the software development capabilities that People, Ideas & Objects is proposing, and the organizational structure focused on the Joint Operating Committee, the prospects look dim. It is our claim that we provide the oil and gas producer with the most profitable means of oil and gas production. And we do. First by providing our software through the most cost effective manner. That is charging our subscriber base for the costs of developments once. And secondly, that in order to attain a higher level of economic output requires that the industry employ higher levels of specialization and division of labor. In order to organize that specialization and division of labor requires the use of the software specified in the Preliminary Specification. There is no other means in which to organize a higher level of specialization and division of labor. The bureaucracy is tapped out. Therefore our claim is valid.

When it comes to undertaking a large project such as People, Ideas & Objects Preliminary Specification. And we have costed the total software development project in the area of $1 to 2 billion in its first commercial release. Is the need to maintain a sense of urgency for the people involved through to the end of the project. As we know, most of the people will remain motivated as long as the money keeps flowing. So how do we ensure that the money keeps flowing? It is through the fact that we provide the most profitable means of oil and gas production that we can motivate the producers to maintain their sense of urgency in keeping this project funded and moving forward to its conclusion. Their alternative is the bureaucracy and we see how well they’re doing. In the future it may not be enough to own the oil and gas asset. It will also be required to access the software that makes the oil and gas asset profitable, that is the importance of software in tomorrow’s society.

People, Ideas & Objects is derivative of Professor Paul Romer’s “New Growth Theory." That is that economic growth is the result of People, Ideas and Things. We just exchanged “things” with “objects” as we are object based software developers. I highly recommend reading his interview on “New Growth Theory” it will provide you with a good understanding of the theory and how it pertains to the Preliminary Specification. It states that we need to structure the right institutions. “This new theory says technological change comes about if you have the right institutions.” Oil and gas being of course one of the most technical of all industries.

Within the Knowledge & Learning module we have the capabilities of the producer firms that are participants in the Joint Operating Committee. Each capability contains the knowledge, skills, experience and ideas of the people who are part of that producer firm and the service industry representatives. As we have learned “knowledge begets capability, and capability begets action." Quotes are from Professor Richard Langlois 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

Here we begin to see the role that people take in the makeup of the oil and gas industry. And to sum it up is to state that it is everything. One also needs to consider the role of computers in these “actions” and that it amounts to not very much. People, Ideas & Objects divides the jobs between what people do well, the thinking, generation of ideas, leadership, collaborating, deciding and learning and leaves the memory and processing to the computers.

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

There is much to be done in the industry and a lot of it involves blazing new trails. The hard work is what the people will need to be involved in doing. The challenges and opportunities are of historical significance and will require the dedication of a lot of people.

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

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Industrial Structure in the Innovative Producer

If we go back to the previous modules we recall the discussion around moving from the “high throughput production” model to the “decentralized production” model that was being conducted in the Preliminary Specification. Essentially the “decentralized production” model has all of the costs, production and overhead, matching the revenues. So when there was no production, there would be no costs associated with any shut-in production.

The “high throughput production” model has the overhead costs of the producer as fixed. These costs remain fixed despite the volume of production and are difficult to adjust to any change in the underlying business. The “high throughput production” model is something that the bureaucracy can do. It is their means of managing and is how they are able to provide value in the organization. That “high throughput production” is incapable of providing value today is a matter of the time and place that we find ourselves in. Using the “high throughput production” model requires the bureaucracy to summarily ignore the Joint Operating Committee as the key organizational construct of the oil and gas industry. It can not do both, “high throughput production” requires the designation of operatorship be granted to one partner for control over the property.

Industrial structure is really about two interrelated but conceptually distinct systems: the technology of production and the organizational structure that directs production. These systems jointly must solve the problem of value: how to deliver the most utility to ultimate consumers at the lowest cost. Industrial structure is an evolutionary design problem. It is also a continually changing problem, one continually posed in new ways by factors like population, real income, and the changing technology of production and transaction. It was one of the founding insights of transaction-cost economics that the technological system does not fully determine the organizational system (Williamson 1975). Organizations — governance structures — bring with them their own costs, which need to be taken into account. But technology clearly affects organization. This is essentially Chandler’s claim. The large-scale, high-throughput technology of the nineteenth century “required” vertical integration and conscious managerial attention. In order to explicate this claim, we need to explore the nature of the evolutionary design problem that industrial structure must solve. p. 50

With the Preliminary Specifications adoption of the “decentralized production” model and the recognition of, and technical support of the Joint Operating Committee. The elements of change are in place. It is the culture of the industry to use the Joint Operating Committee, it is an industry that is based on partnerships and the closer we move to that culture the greater alignment (speed, innovation, and accountability) we will achieve. This next quote should be read twice with either the hierarchy or the Joint Operating Committee in mind.

And there are certainly examples of this. But it is also possible that a structure of organization can persist because of “path dependence.” A structure can be self-reinforcing in ways that make it difficult to switch to other structures. For example, the nature of learning within a vertically integrated structure may reinforce integration, since learning about how to make that structure work may be favored over learning about alternative structures. A structure may also persist simply because the environment in which it operates is not rigorous enough to demand change. And organizations can sometimes influence their environments — by soliciting government regulation, for instance — in ways that reduce competitive rigors. p. 58

This discussion elevates the importance of the Research & Capabilities and Knowledge & Learning modules in defining how the industry operates. These modules remove the task of how the industry is operated from the hands of the bureaucracy and moves the operations to the Joint Operating Committee. It is therefore a critical module.

Over time, two things happen: (a) markets get thicker and (b) the urgency of buffering levels off and then begins to decline. In part, urgency of buffering declines because technological change begins to lower the minimum efficient scale of production. But it also declines because improvements in coordination technology — whether applied within a firm or across firms — lower the cost (and therefore the urgency) of buffering. p. 78

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Markets Replacing Management

We see with the decline in the natural gas prices that management are not attuned to the market or the “price” system. Management are more familiar when they have control of everything and it operates as it should. Well unfortunately for them the scope of their authority is not as a broad as it once may have been. What other areas has the market been sending price signals that the management refuse to hear? We can only imagine. The fact of the matter is that the oil and gas producer and the Joint Operating Committee need to be attuned to the marketplace in order to better understand the business. They also need to have better Information Technologies so that they can know that they are not making any money on any natural gas that sells below $5.00. We can in the last item of this next quote learn that management's lack of hearing is symptomatic of their species. Quotations are from Professor Richard Langlois book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy."

As Chandler tells us on the first page of The Visible Hand, two characteristics set the managerial corporation apart from earlier modes: (1) it is overseen by salaried professionals rather than by owners, and (2) it comprises multiple units or stages of production each of which could in principle have stood on its own as a separate organization. The last characteristic is really the essential one. In the large corporation, management supersedes the price system as a method of coordinating stages of production. p. 8

It is then within management’s character to not listen to the market. When natural gas prices hit $2.15 just ignore these signals and keep producing. That’s the solution. That Deer in the headlights look about the earnings is intended to solicit sympathy. It is Professor Langlois thesis that the Visible Hand of management is being replaced by the Vanishing Hand of the marketplace. I would suggest in oil and gas the transition hasn’t happened fast enough.

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

In this next quote Professor Langlois percolates the entire essence of what is necessary for the oil and gas industry to grow and prosper. It is these elements that we have captured in the Research & Capabilities and Knowledge & Learning module of the Preliminary Specification.

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

It seems so simple now. When an earth scientist or engineer can deploy a capability with the ease of calling a play, as in our football analogy, to the opportunity that has presented itself. Economic growth is the result. Having a listing of the capabilities that are available from the participating producers of the Joint Operating Committee. Accessible within the Knowledge & Learning module provides for its own economic opportunity as well. Seeing that producer x has developed a new capability to conduct y operation may motivate that Joint Operating Committee to deploy the capability and enhance its production.

Replacing managerial capitalism with market capitalism is exactly what the oil and gas industry needs. By adopting the Preliminary Specification, and having access to the Research & Capabilities and Knowledge & Learning modules, producers and Joint Operating Committees will be able to make this transition.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Operational Control and Freewheeling Markets

A recent McKinsey Newsletter begins with “In a world of unprecedented volatility, the unprepared will be sorely tested.” Lets hope that no oil and gas firms are caught unprepared without an innovative oil and gas ERP system like People, Ideas & Objects. As we enter the era of insatiable demand for energy. With fixed earth science and engineering resources, reorganization is the only manner in which we can approach the situation at hand. “Unprecedented volatility” will provide remarkable opportunities for those that are users of the People, Ideas & Objects Preliminary Specification. I believe it will be necessary to not only own the oil and gas asset but to also have access to the software that makes the oil and gas asset profitable. Such are the times that we find ourselves in.

In his paper “Innovation Process and Industrial Districts” Professor Richard Langlois discusses Industrial Districts (ID’s). Which are small geographically located groups of vendors that work together to produce products and services. They are for all intents and purposes the same as what we have been describing as the service industry or marketplace that a Joint Operating Committee would access during an operation in the field.

As we have shown, much of the attractiveness of compact, highly-localized areas of production results from their ability to reduce search costs, but this is accompanied by the risk that the knowledge available in any given district may be substandard. But new information and communications technology (ICT), may make it possible for firms to draw more cheaply and effectively on diverse sources of knowledge and therefore to increase their access to innovative ideas (as well as their ability to market their own innovations if they wish) (Langlois, 2003; Christensen, 2006). This may not undermine all aspects of the operations of IDs because differentiation and specialization retain their importance, and proximity is useful in just-in-time and other lean ways of organizing production. For innovation, however, an ability to tap wider sources of knowledge quickly and cheaply can reasonably be expected to allow firms all along supply chains to consult more broadly than in the past. Improvements in ICT and new search techniques, many of them associated in one way or another with the Internet, not only increase access to knowledge but may force innovation on firms that in the past could shelter in IDs. Because their customers can be better informed, firms in IDs need to keep up to date in order to maintain competitiveness. p. 20

In the previous quote the customer is the Joint Operating Committee. The expectation through the Research & Capabilities and Knowledge & Learning modules is that the marketplace or ID’s will be state of the art in terms of their capabilities. That may not be the case, and most probably will not be the case. There are a lot of international firms that operate within the service industry. And these form the foundations of what these ID’s are. But in most cases they are local and to assume that they are able to organize themselves in a manner that will optimize the Joint Operating Committees needs is incorrect.

Here again, I think the problem is one of conceptual imprecision. It is perfectly common, and often unobjectionable, to contrast a market and an organization, that is, to contrast the institution called a market and the institution called an organization (such as, notably, a firm). But the opposite of “organization” in the abstract sense is not “market” but disorganization. More helpfully, the opposite of conscious organization is unplanned or spontaneous coordination. In this sense the market-organization spectrum (and similar spectra one could imagine) are arguably orthogonal to the planned-spontaneous spectrum. One could well wonder, as I have (Langlois 1995), whether large organizations do not in fact grow far more as the unplanned consequence of many individual decisions than as the result of the conscious planning of any individual or small group of individuals. And it is certainly the case that, as Alfred Marshall understood, both firms and markets “are structures for promoting the growth of knowledge, and both require conscious organization” (Loasby 1990, p. 120).

Expecting the service industry to provide the Joint Operating Committee with “conscious organization” of disparate firms and organizations is wrong from the point of view of operational control. The Knowledge & Learning “Planning & Deployment Interface” use of the Military Command & Control, AFE, and Job Order systems provides the means in which to put some organization within the ID. And in turn provides the Joint Operating Committee with...

Charles Sabel and his collaborators have begun looking into the nature of the relationships that characterize the New Economy (Gilson, Sabel and Scott 2008; Jennejohn 2007; Sabel and Zeitlin 2004). And what they find is not common ownership or hierarchy but rather a “form of contracting [that] supports iterative collaboration between firms by interweaving explicit and implicit terms that respond to the uncertainty inherent in the innovation process” (Gilson, Sabel and Scott 2008, p. 3). The New Economy may be highly organized. But it is fundamentally contractual, in a way that large Chandlerian multi-unit enterprises are not. These latter, properly understood, are indeed fading away in a world of extensive, capable, diversified markets.

We had discussed the coordination of the markets or the service industry during a field operation. How it is up to the Joint Operating Committee to organize the markets to ensure the performance they desire is attained. We want to discuss the changes in the roles and responsibilities within those markets and the Joint Operating Committee itself. How those changes come about and the manner in which they are implemented within the JOC. Specifically how innovation is introduced into the field operation through further specialization and the division of labor. The Knowledge & Learning module of the Preliminary Specification uses the Military Command & Control Metaphor (MCCM) to coordinate the markets, it will also show the “gaps” that need to be filled with new innovative positions.

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

In each of the marketplace modules (the Resource, Petroleum Lease, Financial) there is a “Gap Filling” interface. These are for the purposes of identifying and publishing “gaps” in the markets offerings, and, publishing of ideas as to where “gaps” exist within the producer firm and Joint Operating Committees. Each of the “Gap Filling” interfaces is essentially the same interface and that interface can be viewed to determine its effect on the current Joint Operating Committee. Once these “Gaps” are filled they need to populate the MCCM and be assigned the roles and responsibilities within the chain of command for the field operation. This is a manual and deliberate process, it is not spontaneous as we might think that it is. It is as Professor Langlois stated in the previous quote “or in sectors of developed economies undergoing systemic change, gap-filling requires other forms of organization -- more internalized and centrally coordinated forms.”

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

There is only one way in which the oil and gas industry is to become more productive. That is through specialization and the division of labor. Particularly in the earth science and engineering disciplines. People, Ideas & Objects have approached the issue of the insatiable demand for energy and the somewhat constrained resource base of earth sciences and engineers through specialization and the division of labor. To approach this issue without the use of software in this day and age would be the same as using tools from the stone age. The effect of pooling the technical resources of the participants in the Joint Operating Committee is the beginning of the specialization and division of labor necessary to expand the industry's overall output.

Let’s take a closer look at the nature of the “gaps” involved. Adam Smith tells us in the first sentence of The Wealth of Nations that 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 (Richardson 1975; Young 1928). p. 7

Knowledge & Learning is the name of the module. Although it seems to be pursuing conflicting goals of operational excellence and innovativeness at the same time. There is a time element where the operational control fixes all of the variables and locks them down. That is a time when the operation is conducted for its efficiency. Other times and in other ways the module remains open and flexible to change to allow for the second major process of innovation within the People, Ideas & Objects Preliminary Specification to occur.

But even in “developed” economies, novelty and change creates the sorts of gaps that call for business groups, including less-formal sets of “intermediate” relationships, as, for example, in geographic (or, increasingly, “virtual”) industrial districts. In this sense, the economics of organization generally can learn from the literature on business groups outside the developed world. The problem of gap-filling in highly developed economies differs from that in less-developed economies because the path ahead is cloudier, which suggests that more-decentralized organizational structures may be more successful at the cutting-edge of technology. p. 29

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Joint Operating Committees, Markets and Information Technology

It is at the Joint Operating Committee that the bureaucracy have very little in which to do. Therefore it seems opportune to discuss the fact that the bureaucracy needs to fade from the scene in order for the operational work to be done. Our discussion carries on with the theme of kicking the bureaucracy and highlights how they have failed in the past. This brings up a brief review of Professor Alfred P. Chandler’s work through the writings of Professor Richard Langlois.

It is within the Joint Operating Committee that all of the action within the industry is conducted. That is to say that most of the field operations are commanded and controlled as proposed through the Knowledge & Learning module of the Preliminary Specification. Therefore it will naturally be where everyone will be trying to stick their fingers in to be part of the action. You can be certain that the bureaucracy will be there asserting that they need to have such and such report by midnight. Let's be mindful of their ways and means and ensure that doesn’t happen.

One group that People, Ideas & Objects is appealing to is the investors of the oil and gas industry. As Professor Chandler notes in his work, capital started everything. Chandler's review of corporate history shows the role of the merchants. Investing their capital and skills, merchants were the ones that started the ball rolling. I see no reason why we can’t turn to the investor and C class management of the oil and gas industry and expect that they be the ones that lead in this next phase of the industry.

After all it is the investors who are the ones that have the most to lose. Management have no stake in the firm. If a crisis were to strike a firm, the management would resume elsewhere. It is the investor and debt holders who will shoulder the costs. Management currently hold the reigns, and are mindful that their options may lay elsewhere. Ownership, in the same fashion as the merchants needs to start over. Starting over begins with supporting People, Ideas & Objects and the Preliminary Specification.

The possibility of a management failure is not new, it has happened before. Professor Chandler noted that management have failed before. During the great depression, a time when government had to increase its involvement in the economy. Management may not see the more global picture, and therefore, may fail again. During this great recession we see that many things have changed. The oil and gas industry has certainly changed. Information Technology is also having an effect. The time to act is now as there is much work in which we need to do.

I think it could be argued that the oil and gas industry is not unique in its criticism of management. What this great recession is about is the failure of management in all industries. The management revolution, if there ever was one, needs to be replaced by markets. As the abilities of management to keep up with the changes and dynamic nature of the marketplace is an impossibility in every industry. We have seen the management have ruled for the better part of a century, and there time has come to pass. We need to replace them with dynamic markets and Information Technologies that provide for the speed, innovation and accountability that our society demands of our organizations. That is what People, Ideas & Objects is designed around, the Joint Operating Committee, markets and Information Technology.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

The Influence of Inertia on Innovation

We are continuing with our review of Professor Langlois paper “Institutions, Inertia and Changing Industrial Leadership." As we move to identify and support the Joint Operating Committee in the manner that is described in the Knowledge & Learning module of the Preliminary Specification. Change from the status quo bureaucracies is seen as difficult and troublesome. How that transition occurs is through two possible alternatives. One the existing producers can atrophy and die a slow and painful death. Or alternatively, the decision can be made to build the Preliminary Specification and move to the Joint Operating Committee as the innovative construct of the oil and gas industry. If only it was that easy. The decision to make the change is the appropriate choice to make however there are other considerations that need to be made.

One of those considerations is the inertia that exists within the current institutions. Many of the producers have been developed through an era of low energy prices where the survival skills were needed. Innovation was not something that was rewarded and as such did not exist. Now that we are within reach of the era of insatiable energy demand, the need for innovation is the key and that must become the culture of the firm. Therefore in the Knowledge & Learning and other modules of the Preliminary Specification, whether it is by atrophy or by decision, the development of the culture and the Preliminary Specification will always be an “outside” of the mainstream kind of development.

Overall, then, inertia exerts two principal influences on the ability of firms to cope with innovation. Inertia is often a product of successful adaptation to earlier innovation, as a firm develops ways of operating that appear to be so well suited to its internal and external environment that it sees no reason to change. In many instances, this adaptation may prove so effective that the firm can retain a total cost advantage for a prolonged period despite using an outdated technology because it can still capitalize on its master of compatible support and ancillary operations, while firms adopting a new, and technically more efficient technology, are still wrestling with the expensive process of acquiring the endogenous and exogenous institutional backup necessary to gain full value from the innovation (Hannan and Freeman, 1989). p. 7

There is no doubt that we will have difficulties in developing and implementing the technologies involved in the Preliminary Specification. And there will be times when the costs seem to outweigh the benefits. However, in the long run is there a choice other than to pursue these changes? And this fact needs to form the commitment that people have to make to ensure the necessary changes take place. There will always be those that resist the changes, and there is little that can be done about that. What is needed is for those that can make the change to follow through.

Another aspect of capabilities that has recently received a great deal of attention is organizational culture. In practice, not all organizations may be equally able to cope with change, as existing patterns of behaviour involving both executives and subordinates may be resistant to change. Organizations develop collective habits or ways of thinking that can be altered only gradually. To the extent that a given culture is either flexible or consistent with a proposed change in product or process technology, the transition to the new regime will be relatively easy. If, however, the culture is incompatible with the needs posed by the change and is inflexible, the viability of the change will be threatened (Robertson, 1990; Langlois 1991; Camerer and Vepsalainen, 1988). p. 9

After all we are not talking about minor changes to the floor plan for accounting. We are exercising wholesale changes to the oil and gas industry by adopting the Preliminary Specification, and fully utilizing the Joint Operating Committee. Change that is as significant as that which is represented by the change in energy prices and the global demand structure we face. This will not be done successfully in a fashion that smooths over the rough edges.

Teece... fails to note that the inflexibility, or inertia, induced by routines and the capabilities that they generate can raise to prohibitive levels the cost of adopting a new technology or entering new fields. Such inertia can develop to the extent that existing rules are both hard to discard and inconsistent with types of change that might otherwise be profitable. p. 10

Creative destruction has such a profound ring to it. It's times like these that we see the scope of change and the need for change clashing with the desire for change. Some might look back and say that the North American gas business refused to change, and as a result change was forced upon it. Who knows.

Whereas major competence enhancing innovations may, in time, be assimilated, the creation of entirely new organizations may be needed to deal with innovations that undermine the capabilities or competencies of existing firms. p. 11

It is as I have suggested that People, Ideas & Objects will be there one way or the other.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.