A World of Data

Turning once again to Professor Giovanni Dosi for the determination of the three key factors of innovation. He notes that they are the result of the “search, development and adoption of new processes and products in market economies and are the outcomes of the interaction between:”

• Capabilities and stimuli generated with each firm and within the industry of which they compete.
• Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.
• Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

While in the Performance Evaluation and Analytics & Statistics modules the user would be searching for information or some insight into the data. This is the beginning of the innovation process and the tools provided in these modules would be part of the capabilities necessary for innovation to be developed within the innovative oil and gas producer. This is clearly evident by Professor Dosi’s three key factors. With the growth in data expected to continue. Users of these tools would find a rich resource to develop a perspective of looking at the data from an innovative point of view.

Lately we have heard about a new field of data that is growing in importance. Unstructured data. Data that isn't managed by a database and has no implied meaning to its structure. The marketplace modules of the Preliminary Specification, the Resource, Petroleum Lease and Financial Marketplace modules and to a lesser extent the Research & Capabilities module all have “marketplaces” within them. These marketplaces would have substantial unstructured data that would be of use to those potential users of the Performance Evaluation and Analytics & Statistics modules.

Taking a step out further, these two modules should not be constrained to the internal systems of the producers. They should have the ability to access other sources of data and information, structured and unstructured, so that the user can use all three of Professor Dosi’s key factors of innovation to develop new and innovative ideas. It might be worthwhile to have a “Help” section within the People, Ideas & Objects modules. A section that includes the research of Professor Giovanni Dosi’s work on innovation. Then people would have a quick reference as to items like the three key factors so that they could use them in their day to day tasks to help develop a more innovative mindset.

For example, Professor Giovanni Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? These are the questions that the Preliminary Specification is determined to answer. From the perspective of the Performance Evaluation and Analytics & Statistics modules I think we can provide the user with a variety of tools that helps them to drill down into the data and ask the questions that haven't been asked. People, Ideas & Objects is an ERP system, however, as we have shown with the modules in the Preliminary Specification there is a lot of data and information that is generated through collaborations and the documenting of items. It won't be just accountants that will want to use these two modules, but anyone that is employed by a producer firm or Joint Operating Committee.

Here is a quick summary of some of the functionality and process management the Performance Evaluation and Analytics & Statistics modules provide the user.

• The ability to rise above the transactional work that is being managed by the other modules. We are moving from recording of transactions to designing transactions in many of the modules. Leaving the recording of transactions to the computers and the analysis to the users of these modules. 
• Use of the “R” statistical language as an embedded program within both of the modules. 
• Configured user tools that enable the user to demo, or build small applications that fit small niche needs. If these needs grew to where more people wanted similar programs they could be used as a prototype for the People, Ideas & Objects developers to build. 
• Querying and determining where the performance and direction of the firms or Joint Operating Committees value is found. Allowing people to focus on that value generation and avoid the potential destruction of value. 

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.

User Focused Development Tools

When it comes to what we are currently given to work with in terms of ERP systems, they can leave much to be desired. If only we could have “this, that and the other thing,” our lives would be so much easier. It seems simple, however, the inertia necessary to overcome just “this” requires the fortitude and political skills of a saint. So we continue on in what can only be described as someone's bureaucratic vision. People, Ideas & Objects seeks to resolve some of the issues users are faced with in confronting the “this, that and the other thing” in systems by basing our development in the user community. Inherent in that offering is that People, Ideas & Objects are not conflicted by the traditional constraints of software code and customers. That is to say we only earn our fees based on changes to the software code, we are therefore agents of change, not seeking to obstruct change.

The point is that when it comes to having the user enhance the system. People, Ideas & Objects business is motivated from a business perspective to do so. That’s how we earn our revenue. Our point of view is that the software is in a state of constant improvement, driven by its users imagination and needs.

So when the time comes for a user to think that if they had “this, that and the other thing.” They will have a means to effect that change and have it fulfilled through the user community. But this isn't about that process of change specifically. Its about the stop gap measure that they may want to implement in the short term while they wait for the user community to implement their idea.

For that stop gap measure we turn to the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification. These modules will have the ability, since they have access to the data, to prepare ad-hoc reports that the user can develop for themselves. Granted most of these user developed reports won't be ready for prime time, however for the purposes of the user they can fit the need in the short term.

The user generated reporting tool will be part of both the Performance Evaluation and Analytics & Statistics modules. And provide the user with a sophisticated graphical user interface to manipulate the data and develop queries. We've all seen these tools before and I’m not really suggesting anything new here. What I think is different however is the access to the data will be different. First that the volumes of data will be greater and secondly the Security & Access Control module will be providing the access to that data and information based on the users privileges.

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 Downside of Analytics

I have seen this happen many times in oil and gas. Situations where the divestiture of assets is done without the full understanding of how the asset fits into the overall makeup of the organization. These types of situations happen when the performance mindset takes over all rational thought and the highest performance wins over every other consideration. This is the danger of these analytical tools and as we move into a period of a sharper more accurate tool set, that danger becomes more prevalent.

There’s math, and then there’s strategy. The situation we see where the oil and gas firm that runs into difficulty financially, or operationally begins to rationalize their asset base. They think they need to raise money by selling some assets. So they naturally think they'll sell some of their “midstream” assets. The gas plants, gathering and processing facilities that earn only a fee for service on the customer products processed. These assets, when looked at from a financial performance point of view, don’t come close to even being on the right street where the ballpark is on. Therefore they get sold for the high replacement cost that they would receive and the seller thinks they made a good deal. The fact of the matter is that the majority of the smaller producers may have been selling the C3+ products directly to you for fire sale prices because they have no capacity to deal with them. You being the only one in the area with processing facilities were able to negotiate a very good bargain and acquire the majority of the natural gas liquids in the area for literally the royalty costs. Now that the plant is sold, those products are lost and that production is gone to the new owners of the plant.

The majority of the oil and gas producers that I have seen and studied take a while to fully understand what exactly is happening. What seems to be a jumble of activity for no apparent reason can, upon further study, become a symphony of brilliance assembled by someone of such great vision it can be truly breathtaking. Selling a gas plant out from the middle of this shows that the seller can’t see the vision and the assets are no longer going to perform as expected. Having tools like the Analytics & Statistics and Performance Evaluation modules in the hands of people who may not fully appreciate the vision of how the firm was built could have detrimental effects to the overall health of the firm.

If we go back to something we reviewed a while ago about the decision rights we find this quotation from Professor Richard Langlois.

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 9

In People, Ideas & Objects we have moved the knowledge to those with the decision rights, which reside with the Joint Operating Committee. And as opposed to contradicting ourselves, we find clarification of this issue in the following fact. The decision rights held by the Joint Operating Committee are the operational decision making authority. The strategic decision rights regarding ownership and divestiture are held by each individual producer regarding each of their working interest shares. Therefore there is no risk that the property is going to be “harmed” in any material way by making a strategic decision of that type in the Performance Evaluation module. It is beyond the scope of the authority of the Joint Operating Committee. It is fair to assume that the scope of the authority of the decision made through the Performance Evaluation module will be limited to the operational concerns, and be mitigated on the downside to the short term. That is to say any negative decision would be reversed as soon as it is realized.

I think nonetheless it would be worthwhile to have a strategy review “attached” to each decision based on the Analytics & Statistics and Performance Evaluation based decision. That the decision has some analysis that is purely qualitative to counter the quantitative elements of the modules. If this qualitative analysis could be embedded into the modules for documentation purposes that would build value in these modules specifications.

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.

Introduction to Performance Evaluation and Analytics & Statistics

The Performance Evaluation and Analytics & Statistics modules have similar interfaces, the Performance Evaluation is focused on the Joint Operating Committee and the Analytics & Statistics module is focused on the producer firm. Essentially these are user based tools that enable analytical and statistical calculations run against the data and information that are contained within the People, Ideas & Objects ERP systems and other unstructured data. Providing users with the ability to analyze data in new and innovative ways in seeking value for their firm or JOC.

The types of data and information that are prepared and presented in these modules is dependent on the individual users and will in most instances be unique, based on their needs and interests, their scope of authority and the type of work they do. When it comes to who will come up with the next great innovation we should expect that it will come from anywhere. Part of the process of innovation is discovery of the problem and we all see the situation from different perspectives. Therefore the point of view and the innovation will depend to a large extent on those different perspectives. Someone working in the trenches may find innovations that affect their work materially, which may not interest others and vice-versa. This process of discovery should be assisted by the types of tools that include the Performance Evaluation and Analytics & Statistics modules. Professor Giovanni Dosi notes.

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

Irrespective of the source of the innovation the fact that it materially affects someone's work should indicate that it should be followed through. These opportunities are hard to discover and we need to be able to evaluate them and assess them based on their impact and their ability to build value. What sometimes appears to be a good idea can also sometimes become an area where the firm could be exposed to unnecessary risk or loss. Having the historical data available is necessary, however, in the 21st century it is also necessary to have these advanced analytical tools available to analyze that data.

In the Preliminary Research Report, People Ideas & Objects determined two important findings. One was that the process of innovation can be reduced to a quantifiable and replicable process. Analytical tools are part of that process. And two, that the Joint Operating Committee is the key organizational framework for innovation in the oil and gas industry. Therefore having analytical tools in the Joint Operating Committee and producer firm are critical.

Tools for the 21st Century

This discussion deals with the motivations of people to use the Analytics & Statistics and Performance Evaluation modules of the People, Ideas & Objects applications. It's one thing to have statistical analysis tools available for those who are inclined to use them. It's another to have these tools being used by people who are actively looking for the next measure of performance or metric that will reflect how their performance can be improved. This latter use is the reason for these tools to be in the eleven module Preliminary Specification.

We pick up on our discussion from the McKinsey article “The 21st Century Organization.” We now discuss the fourth element of that paper “Measuring Performance.”

The final set of ideas rounding out this new organizational model involves relinquishing some level of supervisory control and letting people direct themselves, guided by performances metrics, protocols, standards, values, and consequence management systems. 

And as noted in the “The 21st Century Organization” people are not measured and told explicitly what to do in their jobs. There is too much activity going on for someone to be doling out task lists to mindless automatons. What the responsible and productive person needs to do in this world of massive information and activity is to focus on what is important. To deal with the critical value generating areas of their jobs that can add, and avoid destroying, value. That is where the Analytics & Statistics and Performance Evaluation modules of the Preliminary Specification come into play. Providing the user with the ability to focus on building value for their clients and employers, the oil and gas producers.

Whether they are earth scientists or engineers, business related or in any field that the oil and gas industry employs, access to the data and information through these modules will be critical to building value. Using the “dashboard” metaphor where algorithms are constantly monitoring various processes. The user would be running statistical and analytical programs that will look at data in new and innovative ways. It could be conceivable that some people may dedicate large percentages of their time of the day to thinking of new ways to analyze the data and information that is available to 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.

Conclusion to the Knowledge & Learning Module

As a point of interest when I read that last quote I became concerned for the Natural Gas business in North America. The size of the Natural Gas storage business has become so large as to dwarf any real purpose for its existence. The other aspect is, the storage business is no longer in the hands of the producers. How then in a market economy will the producers ever get market prices for their product again? The answer is in my opinion only through an industry wide deployment of People, Ideas & Objects decentralized production model.

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 bureaucracy 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 operations. And we do.

First by providing our software through the most cost effective manner. That is charging our subscriber base for the one time costs of developments. 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. And lastly I should point out the $94 billion in 2012 opportunity costs as a result of using the decentralized production model.

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 $2 to 4 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 operations 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.

Markets Replacing Bureaucracies

We see with the decline in natural gas prices that the bureaucracy are not attuned to the market or the “price” system. The bureaucracy 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 bureaucracy 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 natural gas that sells below $6.00. We can in the last item of this next quote learn that the bureaucracies 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 therefore within the bureaucracies character not to listen to markets. When natural gas prices hit $2.15 it is just to 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. 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.

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 is being conducted in the Preliminary Specification. Essentially the “decentralized production” model has all of the production and overhead costs matching revenues. So when production was shut-in, there would be no production, administration or overhead costs associated with those shut-in properties.

The current “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 was their means of managing and is how they were capable of providing value in the organization. That the “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, accountability and profitability) 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.

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 a fixed earth science and engineering resource base, reorganization through specialization and the division of labor 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. And 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 the firms are local and to assume that they are able to organize themselves in a manner that will optimize the Joint Operating Committees needs is possibly 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 are discussing 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 by the market participants 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.

Two Major Processes of Innovation

We turn now to the topic of innovation with Professor Richard Langlois paper “Innovation Process and Industrial Districts." There are two primary processes of innovation within the Preliminary Specification. One is within the Research & Capabilities module and the other is here in the Knowledge & Learning module. Each process works in different ways to capture innovation in a manner that is effective and efficient for both the producer firms and the Joint Operating Committee.

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

In the Research & Capabilities module innovation is developed through the research and application of earth science and engineering to the assets of the firm. These innovations are then developed fully to ensure that they are proven capabilities in which the firm can deploy. Then they are listed in the “Dynamic Capabilities Interface” in which they are deployed to the pertinent Joint Operating Committees of the firm to use. This process is to ensure that none of the testing or development of the innovation is repeated in each and every one of the Joint Operating Committees, only proven and fully tested capabilities are included in the interface.

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

The second major process of innovation is contained within the Knowledge & Learning module of the Preliminary Specification. It is a hands on, ad-hoc type of innovation that is as a result of the new knowledge that is expected in the marketplace. Even with the tight operational control that we have established in the Knowledge & Learning module. It is possible and advantageous to have high levels of innovation occur. With a strong command and control environment the ability to get an operational command decision to implement some new tool, or procedure is easily attainable. It’s not like someone has to wander around looking for someone who might have authority to implement a new idea. With the Military Command & Control Metaphor and the Job Order System it will be obvious who has the appropriate authority and responsibility in terms of making the decision to implement a new innovation.

Once these new innovations have been implemented in the Knowledge & Learning module it is important to be able to assess their impact on the operation. Updates to the “Lessons Learned” interface will be necessary. This will ensure that the firm whose capability it was that was used for the operation is informed of the updated innovation and their results, so that they may update the information for their capability in their “Dynamic Capability Interface."

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.

One More Kick at the Bureaucracy

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 at 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 have attempted to appeal 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 executive 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. The bureaucracy have no stake in the firm. If a crisis were to strike a firm, the bureaucracy would resume elsewhere. It is the investor and debt holders who will shoulder the costs. The bureaucracy currently hold the reins, 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 bureaucratic failure is not new, it has happened before. Professor Chandler noted that the bureaucracy have failed before. During the great depression, a time when government had to increase its involvement in the economy. The bureaucracy 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.

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.

Change and Cognitive Dissonance

We continue our discussion on the forces of change in the Knowledge & Learning module. We pick up the discussion around the topics of inertia and equilibrium and how they are managed in the Preliminary Specification. To achieve higher levels of economic performance we know that it requires a reorganization of the resources of both the service and oil & gas industries. Our problem comes about as a result of the fact that our society is very advanced and the ability to increase our performance needs to have the necessary software in place first. Without the software in place no change will take place and no improvement in performance will occur. The bureaucracy in the oil and gas industry are aware of this and are using it to assure that their current positions are never challenged by ensuring they never change the software. This has made for a particularly difficult situation for the industry to advance.

Should there be the changes that are suggested in the Preliminary Specification? Should we continue with the SAP perception of what an oil and gas producer is? What is the vision of the oil and gas producer in the era of insatiable energy demand? These are questions best left for others to answer, all I can do is continue to offer the solutions based on the Joint Operating Committee. I would suggest that today’s topics of inertia and equilibrium can best be described in the industry as stagnant and disjointed. The quotations are from Professor Richard Langlois paper “Institutions, Inertia and Changing Industrial Leadership."

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

The Preliminary Specification provides for the second item in this quote of “there must be a new species available to take over the territory or a new theory to account." And it also provides a vision for the third item in the Langlois’ quote of “a behavioral shift to ensure alignment between the requirements of the new order and the actions of its agents.” As we noted how the service providers and service industry representatives would be motivated to form new and innovative service offerings to their producer clients and the Joint Operating Committees. So with these we would be well on our way to making the transition to the environment that is described in the Preliminary Specification, despite the actions of the bureaucracy.

I am also operating from two fundamental assumptions that lead me to come to the conclusion that these changes will take. That the stuffing of another ream of paper in the printer is how the system is fed in the oil and gas industry today. That is, the ERP systems that operate today are woefully inadequate for the needs in the era of insatiable energy demand in which we are about to find ourselves in. These systems have no future. And that high levels of cognitive dissonance occurs when people read the Preliminary Specification. That is to say it resonates with their understanding of what an oil and gas system should be, and they desire it.

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

I know that the bureaucracy needs to be vigorously displaced, however the inertia to change will be strong to replace the stagnant and inert systems that so poorly serve the needs of the people, producers, Joint Operating Committees, service industry participants and society in general. And this is represented in our value proposition which provides evidence of $94 billion in incremental revenues and profits for the 2012 calendar year. Similar opportunity costs would be available at any time that the bureaucracy is in place. Continued operations in the face of such value destruction sets the stage for a “vigorous displacement.”

They, the bureaucracy, have effectively mismanaged the natural gas business in North America. The Deer in the headlights response to the natural gas prices shows that the level of “inertia” in the oil and gas industry is strong. It is to muddle along. Take what is given and survive for another day. Is this the appropriate footing for the innovative oil and gas producer in the era of insatiable energy demand? With rapid depletion of the natural gas reserves there has to be a better way. And that is the decentralized production model of the Preliminary Specification. Quotes are from Professor Richard Langlois paper “Institutions, Inertia and Changing Industrial Leadership."

Here we concentrate on explaining the part played by inertia in causing economic displacement. We argue that inertia is often a rational response for firms or governments even after an important innovation becomes available, and that changes in economic leadership, whether on the level of the firm or the nation, may be inevitable when there is significant innovation. p. 4

and

Here, we concentrate on the influence of institutional variables on inertia. Institutions may either retard or encourage innovation. If the institutional structure is unsuited to a new technology and inert, change will be difficult to implement. When existing institutions are flexible or well adapted to the requirements of an innovation, however, change will be accomplished relatively easily. p. 5

Now is the time to retire the bureaucracies to their permanent Florida vacation. They have forcefully resisted People, Ideas & Objects at every opportunity. I don’t see any opportunity for cooperation, nor do I see any need for their cooperation. This can be done by the people who make the industry work. The entrepreneurs, the movers and shakers and the people who know there is a better way. The alternative is as Professor Langlois states a slow and painful atrophy.

And institutional change, we argue, can often take place through the more or less slow dying out of obsolete institutions in a population and their replacement by better-adapted institutions - rather than by the conscious adaptation of existing institutions in the face of change. p. 6

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 innovative culture and the Preliminary Specification will always be an “outside” of the mainstream kind of development.

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.

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.