OCI Request for Proposal, Part II

 Our Value Proposition

What if ERP software in oil & gas was no longer seen as an overhead cost but as the business opportunity that People, Ideas & Objects suggest it is? Which is the perspective oil & gas producers need to adopt to move their organizations on a higher trajectory in terms of performance and accountability. There will be no further development of any organization in any industry without software, but particularly ERP software. This defines and supports an organization's structure, performance and changing capability. Otherwise we will continue to have the paradox in oil & gas where the status quo is satisfied with the status quo and therefore only the status quo will ever be offered. People, Ideas & Objects believe this is the source of the tragic cost we’re experiencing with much more damage soon to arrive. It’s not enough to own an oil & gas asset. Without access to ERP software in the form of the Preliminary Specification there is abundant evidence now that North American oil & gas assets will never be profitable. Regardless of the commodity price, producer officers and directors have shown no interest in anything else. The level of destruction they have caused is unprecedented in business history. We should note that this occurred while our Preliminary Specification, designed specifically to deal with the producers' issues, was offered to mitigate these damages. The faith, trust and goodwill built in prior generations has been destroyed and the industry remains in the hands of those who operate in such bad faith. Now that there’s money on the table in the form of higher commodity prices, and potentially detrimental energy shortfalls this winter, actions need to be taken by oil & gas investors to specify the selection of an acceptable tier 1 ERP provider such as the base of our offering, Oracle Cloud ERP. It should only be People, Ideas & Objects, our user community and their service providers operating as our Cloud Administration & Accounting for Oil & Gas.

In order to clarify their culpability, see the following chronology of recent officers' and directors' records. Each of these specific events is generally known and can be easily verified. 

• On July 4, 2019 People, Ideas & Objects published a White Paper "Profitable North American Energy Independence -- Through the Commercialization of Shale". The title covers the topic, the development and integration of the Preliminary Specification. 
• Our proposal was rejected on the basis that producers were unable to shut-in oil and gas “without damaging their formations.”
• A claim made by producer officers and directors who had done nothing about their organizations after many years of investors' demands to remedy the behavior of chronic overproduction due to the lack of production discipline. 
• In April 2020, or within 9 months of the producer's rejection of our specific proposal to deal with the issue of overproduction. Oil prices reached the negative $40 range and producers were forced to shut-in production. 
• A claim they made to their investors was not possible in 2017 to refute the Preliminary Specification. They knowingly misrepresented the facts, it turned out to be incorrect as they always knew it to be. For example, what do producers do when hurricanes threaten the Gulf of Mexico. Shut-in production and evacuate the staff. Or annual gas-plant turnaround, shut-in production.
• With over 25% of the global oil supply shut-in during COVID, no producer subsequently reported any damage had occurred to their formations. 
• Once oil prices recovered, these officers and directors declared that “shale would never be commercial.”
• In 2021 they announced they were beginning the transition of their organizations to clean energy. 

"It may well be that we have a number of winters where we have to somehow find solutions through efficiency savings, through rationing and as a very, very quick build out of alternatives," Chief Executive Officer Ben Van Beurden told reporters at a conference in Stavanger, Norway. “That this is going to be somehow easy or over, I think is a fantasy we should put aside -- we should confront reality."

• In 2022, 2023 they appeared to realize their error of misdirecting funds. Sold clean energy investments to return to shale. 
• Today we don’t know what business they're in? This is the quality and style of leadership responsible for our economies' energy supply? A responsibility they’re unwilling to recognize, much like their inability to comprehend the need to earn “real” profits these past four decades? Where will we go from here with “muddle through?”
• With a sudden rush to implement SAP at the behest of their "shareholders' demands," it was during July 2023 that producers began parroting the thought that they needed to stop listening to their investors as it has always been "poor advice."

The reality to confront is the industry's dominant "muddle through" culture and strategy. This has helped producers “accept that we can transition to clean energy and discard conventional sources of coal, oil & gas.” Oil & Gas provides 10 to 25 thousand man hours of equivalent mechanical labor per barrel of oil. This amounts to 28 to 71 times the mechanical labor of the entire global population. If we have to ration or conserve this resource, as Mr. Van Beurden asserts, we make decisions about who may eat and work. The officers and directors did not feel obligated to do their job of providing oil & gas to the market, therefore that was the consumer's problem. 

We were also allegedly told we held 50 and 100 year supplies of oil & gas in shale formations available on the North American market a few years ago. This was prior to the unanimous declaration by Shell's former CEO Mr. Van Beurden that shale would never be commercial. In 2021, it was abandoned and sold to invest in clean energy. Now we hear there may only be 10 to 15 more years of usable, drillable shale locations in the U.S. How is this? Oil and gas producers have always focused on reserves. Oil & gas exists in oil & gas men and women's minds. Of which the industry's leadership, such as Mr. Van Beurden prefers chasing fairy tales in the land of perennial losses and the abhorrent accountability of clean energy. Oil & gas reserves depend on economic conditions. At a $5 oil price there’s no oil in the world. At $150, you get a 50-year supply, etc. Technical specifications as to the amount of oil in place are as useless as the estimated remaining usable life of a punch press from a manufacturer. The market will determine its value.

In terms of the value People, Ideas & Objects generate, our Revenue Model provides the lowest ERP system cost in the industry. And that is by charging for software development costs, plus a profit as our fee structure, across the North American producer population. These costs are distributed on a per barrel of oil equivalent production basis. Therefore the industry pays for the one-time costs of ERP software development. A fundamentally more efficient value proposition than any of our competitors that charge each producer individually. Our user community is implementing Cloud Administration & Accounting for Oil & Gas of our software and services of their service provider organizations. Realizing the remarkable cost savings and associated benefits of the cloud computing paradigm across the accounting and administrative domains of the industry. The substantial fixed costs associated with developing administrative and accounting capabilities and capacities within each and every producer organization are redundant, unshared and unshareable. High overhead costs are, we believe, the secondary reason for the chronic lack of “real” profitability in the industry. 

People, Ideas & Objects Cloud Administration and Accounting for Oil & Gas transforms these non-competitive attributes into variable overhead costs. Production that is not profitable can be shut-in to incur a null operation, no profit or loss. Consequently, overhead of the producer firms and Joint Operating Committees will only be incurred during times of profitable production. Using our Preliminary Specifications decentralized production models price maker strategy, all production will be profitable, everywhere and always. Therefore all overhead is recovered in current operations by passing these costs on to the consumers. A critical difference to today's method of operation where most overhead is capitalized and therefore the cash spent is recovered through depletion over subsequent decades. Leaving cash deficiencies for costs such as rent and administrative salaries etc to be replaced by the investors annual stock issuance!

We also provide value because we're not focused on traditional software company concerns like code and customers. Cloud Administration & Accounting for Oil & Gas is oriented and focused on the changing business of a dynamic, innovative, accountable and profitable oil & gas producer. It also includes their associated service industries. This highlights the different motivations of software developers over the long term. With People, Ideas & Objects we generate revenues based on changes and needs producers and others communicate through our user community. We are motivated by continuous software improvement. In the traditional software vendor’s case they are motivated by their code and customer base. The larger their code base, the harder it is to change, which does not produce revenue. And the larger the customer base the more costly any changes become for the software provider to implement across their user base. Coincidentally, these changes to customer software do not generate revenues. Hence, their age and size as a software firm paradoxically leads to increases in development costs and overhead burden. What we have is a contrast and conflict in the dynamic nature of the software itself. This is in terms of the cost to each oil & gas producer and the motivation behind the developer. In addition People, Ideas & Objects uses Oracle Cloud Infrastructure and specifically Oracle Cloud ERP, which is built on Java, the first object-based ERP system. Therefore People, Ideas & Objects will be the first object-based ERP system available in the North American oil & gas industry, providing additional cost benefits over traditional procedural programming languages when all future object developments are incremental to existing code.

It is in each of these areas that we set the foundation for the material value proposition we provide North American producers. We have valued this in the range of $25.7 to $45.7 trillion over the next 25 years. There are many aspects of our offering that are not qualifiable or quantifiable and they are detailed in the discussion below. Our quantified numbers show that operating the industry on the basis of profitability everywhere and always increases North American producers' earnings by $5.7 trillion. The remaining $20 to $40 trillion of our value proposition describes how much capital will be required over the next 25 years. This is an estimate based on what others have said. In the Preliminary Specifications method of recognizing and passing capital costs on to consumers. Overheads are recovered in the current month of operation. And other cash management techniques have been used to manage the business. Using the same investor dollars captured in property, plant and equipment repeatedly on a cycle that competes with North American capital markets expectations eliminates the need to demand $20 to $40 trillion in new capital from investors. There will be no further need to build balance sheets or put more cash in the ground.

We only include this otherwise redundant business number as part of our value proposition as there has not been any change in industry methods to recognize that a capital intensive industry demands that the consumer's product cost reflects its capital intensive nature. That has not been the case for decades. We've stated this change during the past decade when the Preliminary Specification was available. Investors subsidize consumers' energy use by paying for capital costs. The subsidy amount is reflected on producers' balance sheets in the property, plant and equipment account. Or as we call these costs, they are the unrecognized capital costs of past production. Officers and directors have relied on a steady stream of new investor cash each and every year for decades, declared they’re profitable in the most specious manner and left the assets on the balance sheet for the CEO to run down mainstreet and brag about how big they grew their balance sheet and how much “cash they put in the ground.” Only in oil & gas could one hear such arguments, however we were subjected to a chorus of this each quarter across North America. 

This overreporting of assets has an equal and commensurate effect on over reported profits. High profits attract investors to invest. Ultimately leading to overcapacity and overproduction of oil & gas commodities that are subject to price maker economic principles. This resulted in continued price decreases across these commodity markets intermixed with the occasional and all too frequent comprehensive collapse of commodity prices for the past four decades. The consequence is an industry with a substantial negative present value. It consumes value to fund its operations. Only People, Ideas & Objects et al have identified this issue. Prepared a software solution with the Preliminary Specifications in the form of our decentralized production model's price maker strategy.

Contrasting Visions

People, Ideas & Objects, our user community and their service provider organizations have painted a viable and profitable vision of how to rebuild the oil & gas economy in North America from the ashes of what remains. We see the destruction, and much of what will happen in the next few years and it is not something people expect. Producer firms are comprehensive failures of tragic proportions. Action is needed to proceed with this software development initiative. From whom, when and where our funding is sourced is not known to us. We only know the one significant criteria to succeed. Funding must come from the oil & gas industry itself. Otherwise, the industry won’t respect these developments, commit to them, and only look for alternatives when the opportunity arises. Only when they have some “skin in the game” can we begin to rebuild the greater oil & gas economy brick by brick, and stick by stick.

The Preliminary Specification is now more than a decade old. What if its existence was no longer available? Would producers pay dividends, stock repurchases or pay off bank debt? What if the threat of using the Preliminary Specification no longer existed in oil & gas? In September 2023 I will be 65 years of age. Producers' officers and directors may be close to making their ideal situation permanent. What they always wanted is just around the corner. Only People, Ideas & Objects, our user community and service provider organizations stand in their way. Producers have cash streaming in, unaccountable organizations that could overnight and at a whim be involved in a variety of different businesses. Accounting methods that have been accepted by all concerned in the industry for decades, including the CPA firms, and a culture of “muddle through.” It’s decision time as People, Ideas & Objects believe the producers are moving now to seal their legacy of unaccountability and non performance. Doing so in the selection process of SAP as their tier 1 ERP system. They publicly state that listening to their shareholders is a misguided policy. An attitude that may soon be entrenched.

On the other hand this issue needs to be weighed against far larger issues that are persistent and unaddressed in the industry. The first is the science basis of the business and the "muddle through” approach of dealing with the looming retirements and continued inadequate interest in the university faculties the industry depends upon. The Preliminary Specification addresses this in the only way possible through organizational performance increases due to specialization, the division of labor and Professor Paul Romer's non-rival cost or sharing principles. The most significant part of this issue is leadership itself. As much as we berate them here at People, Ideas & Objects they are critical resources. Their inability to deal with the business may be a precursor to their exit from the industry. My point in raising the age issue regarding People, Ideas & Objects, engineers and geologists and industry leadership. If these points are so protracted that if Humpty Dumpty did fall, all the King's horses and all the King's men...

Oil & gas producers' investors insist that they implement a tier 1 ERP system, such as Oracle Cloud ERP or SAP. The Preliminary Specification base is Oracle Cloud ERP and qualifies for this requirement. SAP is used by a few oil & gas producer organizations and they are currently offering their solution as we speak. SAP’s system is designed for manufacturing companies where the ability to organize first, second, and third tier industry product production, just-in-time is attainable. Major auto manufacturers use it as does any global manufacturing concern and SAP makes them their priority. SAP sells their product to oil & gas producers however does not have an oil & gas solution. On September 12, 2022 SAP hosted their 11th annual oil & gas conference in Houston, and virtually. They published a 2017 white paper reflecting what they’re selling in oil & gas. On page 6 we see they focus on “Paving the Way for Business Model Innovations” indicating to me they don’t have a plan. However we read on.

• Oil, gas and energy companies pursue a bold vision for 2025 to deliver safe, reliable and sustainable energy products and services focused on the customer and enabled by innovation.
• To do this oil, gas and energy companies will implement new business models with a keen focus on sustainable energy transition. This will include investing in renewables, focusing on retail, electric vehicle (EV) charging at fueling stations, and carbon-cost reduction. 
• To manage the magnitude of data volume through production and operations, collaboration on access to, and analysis of data require intelligent technologies such as AI and machine learning. Connected machines and business processes can help realize industry 4.0 aspirations. 
• Larger oil, gas and energy companies will continue to diversify into adjacent industries such as utilities, solar and wind power, and energy storage.

SAP’s white paper shows the focus on Information Technology to solve oil & gas issues. Touching on all the key talking points, yet we find no instance of “accountable, accountability or performance.” This white paper and their Houston conference reflect SAP’s marketing brilliance which has been stellar. It is a study of some of the most effective examples in business. What I see SAP doing here is publicly stating that they’re selling unaccountability to producer officers and directors who want to maintain their chronic lack of accountability. Maintaining and permanently securing a lack of accountability in the organization through ERP software cements their bureaucratic manner and method of operation for the long term. I'm predicting significant SAP sales increases once the September 2022 conference is over. 

Once SAP is implemented, producers will be defined by their officers and directors in whatever business they choose that day. They will be built upon the non-accountability framework that has worked so well for them personally. In terms of “what, how and why” SAP proposes to resolve the oil & gas issues and opportunities there is nothing in their white paper. Rather, it focuses heavily on environmentally-based clean energy transitions that are "safe, reliable, and sustainable". It continues with the unauthorized diversion of oil & gas revenues that oil & gas investors create with their investment in the oil & gas business. Profits will continue to be irrelevant, however this behavior will include distributions to investors as they'll know nothing could be done otherwise. What should also be stated is that without a defined plan in place, SAP’s system will need to define, design and architect their system. A process that took a decade for People, Ideas & Objects as it does for all appropriately built systems. SAP will instead adhere to the current officers' and directors' culture to implement quickly.

The focus on oil & gas at People, Ideas & Objects was unwavering, and they could see the clean energy initiative for what it was. An opportunity to be unaccountable for oil & gas investors' money spent in that direction. There is no opportunity for any of the clean energy initiatives to begin to carry the freight that oil & gas does on a daily basis and we discussed that at length in our July 4, 2019 white paper “Profitable, North American Energy Independence - Through the Commercialization of Shale.” Using the Manhattan Institute's Mark Mills "The 'New Energy Economy:' An Exercise in Magical Thinking" to present the fact that the physics do not support a viable or commercial outcome of either wind, solar or battery technologies. Those who bought the tailor's new clothes through this energy transition are now aware of their purchases' shortcomings. Further pursuit in this direction by oil & gas producers only exposes their continued misuse and abuse of their power, authority and responsibility. After a year of this transition it is evident to me that the alleged investors' push and drive for clean energy was contrived for deceptive purposes.

Some people may say that SAP will struggle to build a solution in an environment where Intellectual Property being commercialized by People, Ideas & Objects exists and must be avoided. That however will be a bureaucratic feature, and not a bug. The Preliminary Specification will become the excuse producers use to justify not enhancing performance accounting or accountability due to "existing IP that legally has to be avoided." This may become their latest, and greatest viable scapegoat of all time. 

When I published in May 2004, organizations were defined, supported and constrained by ERP software. Producers interpreted that as the point where no further developments would be done to any ERP system. Cementing their organizations in bureaucratic stasis. Enabling them to hold onto power for decades longer. Not looking at the need to establish the permanent software development capability of the Preliminary Specification to ensure continued organizational development. Therefore in 2023 the prospective avoidance of People, Ideas & Objects IP will be a further extension of this same logic that precludes producers from ever attaining any level of performance or accountability expected of them.

OCI Request for Proposal, Part I

 Abstract

People, Ideas & Objects, our user community, their service provider organizations and Oracle Cloud ERP are based on providing the dynamic, innovative, accountable and profitable oil & gas producer with the most profitable means of oil & gas operations in North America. Our approach is business oriented to focus the industry on generating "real" profitability. This is to ensure society has abundant, affordable and reliable energy to fuel their economy. The most powerful economy known to man. Our value proposition is derived from hierarchy's disintermediation. To fully adopt and integrate the industry standard Joint Operating Committee, the legal, financial, operational decision making, cultural, communication, strategic and innovation framework of the industry. Sound economic principles such as specialization and the division of labor and Professor Paul Romer's "New Growth Theory" regarding non-rival goods have helped establish our Cloud Administration & Accounting for Oil & Gas capability. Eliminating the need for each individual producer to build the same non-competitive capabilities of administrative and accounting expertise on an unshared and unshareable basis. Implementation of our decentralized production model as part of our business model ensures "real" profitability is earned everywhere and always. There are many other attributes of our value proposition such as innovation that cannot readily be quantified and qualified. However, all of these are focused on generating value for all concerned. Where profitability in the primary industry of oil & gas is necessary to ensure that a healthy and prosperous oil & gas economy is maintained and sustained for the long term. 

There are no other financial resources to do so. Governments only spend money taxed on earnings and profits. In general, investors allocate their investments to the most profitable areas of the economy. Oil & gas producers participating in a primary industry must stand on their own and provide for themselves, the service industry and all the subsidiary industries dedicated exclusively to their success. Producers must provide value for their investors, bankers, employees and ensure a healthy and prosperous industry is handed down to others. Profits are the only means to sustain anyone and anything for the long term. To do so takes effort, skill, courage and perseverance. None of these attributes can be pointed to in the current officers and directors of the producers, who coincidentally hold all the authority and responsibility to ensure profitability and accountability are attained, and are the only group who've obtained any personal value from this industry for many decades. These are disconcerting and difficult words aimed directly at those who choose which ERP system to use. However, the destruction and damage they've caused is a fundamental betrayal to all those who have worked to build the industry constructively. Officers and directors have the authority and responsibility to make changes and avoid further catastrophe. We can achieve this by implementing People, Ideas & Objects, our user community, and the Cloud Administration & Accounting for Oil & Gas service, provided by our service providers.

To resolve the current difficulties that plague the North American oil & gas industry, we need to organize an approach to how it will be resolved. That is the work People, Ideas & Objects have completed in publishing the Preliminary Specification. Our approach follows the industry culture contained in the Joint Operating Committee and six other organizational constructs, the overall vision of the Preliminary Specification, our user communities vision which provides them with the authority and responsibility to implement a dynamic, innovative, accountable and profitable foundation. SAP implementations are designed to cater to a firm's internal policies. Industry culture is defined in the Preliminary Specifications by seven Organizational Constructs consisting of the Joint Operating Committee, Innovation, Markets, Professor Paul Romer's non-rival costs, Intellectual Property, Information Technology and Specialization & the Division of Labor. Markets establish an organizational construct on the basis of price.

This proposed oil & gas organizational structure will be the software product of People, Ideas & Objects Preliminary Specification. It will also include our user community and their service provider organizations. What we describe as a rebuild of the industry brick by brick and stick by stick. It's not our intention to destroy the industry. Unfortunately the officers and directors of the producer firms have already done so. Software defines and supports society today. Serendipity, spontaneous order, disintermediation and creative destruction have been hamstrung by software that constrains an organization in proverbial cement. This is based on its current process management definition. Any organizational or process change must be orchestrated through software first. Otherwise the organization quickly reverts back to the processes existing in the organization's software definition. This is the consequence of our dependence on Information Technology and is what we’ve called a modern-day software bug. One that has cost the industry its prosperity as officers and directors took this knowledge, never changed the organizations ERP software and therefore secured their methods of management and personal aggrandizement. 

Fast forward to 2023 and People, Ideas & Objects believes this same logic is used again. Oil & Gas investors demanded producers move to a Tier 1 ERP system to enhance profitability and accountability, of which we qualify with Oracle Cloud ERP. Will producer officers and directors use this logic to select SAP with their vision of clean energy and a pliable "blind sleepwalking agents of whomever will feed them" approach to marketing to secure the sale? We believe this would harm People, Ideas & Objects by eliminating the Preliminary Specification as an active software offering for at least a generation. SAP would have to deliberately avoid our Intellectual Property and that would be considered a feature, not a bug by these officers and directors. Providing them with another viable scapegoat as to why they cannot provide the style of accountability or performance being asked of them. Lastly it would ensure the industry maintains the status quo strategy of "muddle along."

Regarding energy difficulties. I feel we do not have a handle on the situation and control is out of reach of these current organizations' officers and directors. Where we are is best explained in a Winston Churchill quote. 

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.

Background

As pertinent background information, I began this adventure in 1991. I spent the first year promoting Oracle to join our development of client server systems for Canadian oil & gas companies. This initiative failed in February 1997 due to my firm's inability to secure oil & gas producers' commitment. Or in retrospect, I believe now that producers rejected the system due to the high level of accountability we introduced. Oracle subsequently tried Oracle Energy and found the same outcome, no participation from the producers for the same reasons, and left in 2000. In a similar transaction, IBM sold their oil & gas specific ERP system in 2004 - 2005 for the same lack of producer support. There is an inherent level of commitment evident in Oracle's near decade long actions regarding oil & gas ERP systems that is not evident in SAP’s. A 22 page white paper and three day conference are superficial in comparison to the Preliminary Specifications 380 thousand words, a viable business model and an active user community that began its development in 2014. Accountable ERP systems have been deliberately avoided for at least three decades of my involvement. Those who offer such products have not benefited due to their specific pursuit of enhanced producer performance, accountability and integrity.

Oracle’s market capitalization is now $314 billion and it is the premier ERP provider in the world according to Gartner. SAP’s is $156 billion. I do not recall SAP’s efforts to build an oil & gas solution like Oracle or IBM had. Together Oracle and People, Ideas & Objects can build the Cloud Administrative & Accounting for Oil & Gas to solve these critical issues in this industry. And do so by first avoiding the issue of these officers and directors of North American-based producer firms and their desire to maintain their systemic lack of accountability. 

Looking at the decision to purchase and implement an ERP system. It’s expensive, time-consuming, affects firm management and tightens compliance and governance. It holds officers and directors accountable for their actions and decisions. Accounting is about reporting performance. As I’ve documented throughout these writings, the oil & gas producer officers and directors have morphed their accounting to record value. They've chirped their “building balance sheets” and "putting cash in the ground" mantra. People, Ideas & Objects believe that capital intensive industry products contain high levels of capital costs within the product price. By implementing the Preliminary Specification, industry would adopt our methods. This would allow producers to perform, provide accountability and compete for capital on the North American capital markets. ERP decisions are made at the board of directors level based on officers' recommendations. Due to the high cost, time and disruption in producer firms that undertake ERP implementations, this level of organizational involvement is mandatory to make the decision. Once the decision is made it would not even be considered again for at least seven years and only if management were dissatisfied. 

I became aware of a specific request for a Tier 1 ERP implementation by investors a few years ago. I am unaware of how long it has been since it was requested. What we do know is that unlike the move to clean energy which was implemented the night the alleged investors allegedly asked. In what I’ve described was an unauthorized manner, we only recently saw what was predicted for SAP uptake. This is wholly consistent with the refusal to provide competitive investment performance through appropriate profitability for decades. On the one hand, they move into unrelated, uncompetitive industries with no performance record and massive government involvement to compensate for value generation. With no plans or strategy for how to turn clean energy into a success, officers and directors grant themselves the authority to proceed without shareholder approval. Producer officers and directors will be able to justify these actions with the simple viable scapegoat that they’re “saving the planet,” and the reason they’re not profitable is “they haven’t figured it out yet” for their continuing poor performance. Focusing on oil & gas and enhancing its performance doesn’t intrigue them for some reason. Less than 2 years ago, they abandoned shale as a "noncommercial" resource. It is always the officers and directors' primary and only choice to move on to the next "great thing." Not once in their history have they sought to rehabilitate an asset's performance to profitability. Alternatively enhancing the level of accountability of their actions by implementing the August 2012 publication of the Preliminary Specification, our user community and their service provider organizations is obviously never going to happen if SAP meets the Tier 1 ERP requirement demanded by their investors and selected by the producer officers and directors. 

In late 2022 and 2023 we saw many clean energy investments suddenly lose favor among the North American producer population. Realization of the damage they are doing to their own organizations' capabilities in earth science and engineering. And certainly after being destroyed by the producers themselves, the service industry cannot justify capital expenditures when oil & gas leadership saunters off the stage chasing the latest shiny “clean energy” object. In the normal business world this lack of performance would be disqualifying for continuation of the management. The level of destruction is truly epic. Moving off into unrelated industries unauthorized is definitely grounds for dismissal. And now they’re returning due to potentially losing their personal financial benefits in the form of oil & gas cash flow. This should mark the end of this leadership. That they've never understood why performance or accountability are issues. The purpose and need of the Preliminary Specification shows no redeeming value for the officer and director class in North American oil & gas. 

I’ll emphasize the year I started this was 1991, 1992 with Oracle. Both ours and their initiatives failed due to producers' inability to participate? Yes, that’s a question. The issue was not brought up by investors in 2020, or whenever they first requested ERP systems upgraded to Tier 1. This is a culture, a behavior and an infestation across the North American producer population of officers and directors. It is designed to maintain their enhanced personal financial compensation. Producer firms must implement the Preliminary Specification to wrest control from the hands of a small cadre of officers and directors that have found the source of their personal wealth is through a deliberate, destructive and dangerous level of unaccountability. One that has caused enormous risk in societies' ability to source profitable energy independence from secure, reliable and affordable oil & gas. This risk is likely to become permanent if they implement SAP’s ERP software.

I would like to discuss those ERP providers that have been in the market throughout this time and the stellar efforts they’ve done. Producers can avoid Tier 1 ERP providers and maintain their history as I’ve briefly described here. There are ERP providers that cater exclusively to oil & gas. ERP systems providers have been in business for years and decades. They too have experienced abuse by producer officers and directors who seek deceptive accountability. To suggest these ERP providers have been put on a shoestring diet would be unfair and more appropriate to describe it as a second hand shoestring diet. A common tactic was signing a service contract and never paying for the application. Never sponsored any changes to their systems. Producer officers and directors have the systems they want providing them with the obscurity they desire. Why would they change that? Ensuring that their accounting and ERP systems were always inadequate. And I say that with all due respect to my competitors who have done the impossible in the most hostile of business environments. And should they have provided the accountability necessary, they too would have joined People, Ideas & Objects on the outside looking in.

Let me suggest a hypothesis that builds upon our situation today. If oil & gas producers had the appropriate Tier 1 ERP providers in place for the past decades of this history, would the industry have fallen into the financial, operational and political crisis that we see the North American oil & gas industry experiencing today? Is it the lack of effective ERP systems, including SAP, that leads to inaccurate producer results? This has enabled the industry to fall into the disaster and destruction it currently is? I’ll reiterate that the lack of effective ERP systems is the deliberate and desired outcome of producers' officers and directors' actions over decades. Why would only People, Ideas & Objects submit specifications?

Producers should ask themselves. Will consumers demonstrate the same tolerance, patience and perseverance that both their oil & gas investors and People, Ideas & Objects have displayed these past years? Or will they want answers sooner and hold producers accountable for their energy demands and whatever else is on their minds? Will they demand more than “muddle through” as an answer, and who will they turn to to heat their homes and earn their living? Having a permanent, firmly established SAP-compliant, unaccountable organization is a greater concern for consumers than for oil & gas investors. Investors could always sell their interests. I would advise these officers and directors to rethink their approach and ask themselves, just because they can continue with their unaccountable ways, does that mean they should? No one questions oil & gas reserves due to shale formations. There is no doubt that oil & gas producers possess the capacity to spend investor money to increase deliverability. What’s different today is that investors aren’t volunteering for the “dupe” role anymore. And producers have never earned “real” profits. History may not repeat itself. Will there be oil & gas reserves everywhere, and not a drop to burn?

In writing this I fully understand the implications of doing so. Making this a failed RFP a self-fulfilling prophecy is not what I intended. This is my attempt to highlight the risks we may face by cementing the established bureaucracy for at least the seven years SAP will be present. Who will step up if People, Ideas & Objects fail in the market, yet the IP of the Preliminary Specification will need to be accounted for in any future solution? And even if someone felt they could provide a better solution, would they lead their product forward with enhanced performance and accountability? In the same way Oracle and People, Ideas & Objects were ostracized and vilified in the past?

I also want to clarify, it should not be misunderstood that I’m conceding the point. After 32 years, that’s not even on the table. What I am stating is that the stakes for all concerned will grow exponentially more difficult in what appears to me to be this next phase of our journey. More difficult for all those associated with People, Ideas & Objects but also for all those who depend upon North American producers in some form. We are heading to what appears to me to be a “quick decision" by producers to adopt SAP based on satisfying their investors' input, much like they adopted investors' clean energy demands. We should ask these producers if those phantom investors that demanded the transition to clean energy ponied up and actively supported these activities. Returning from the clean energy horizon is like slinking back with their tail between their legs. Although SAP meets the general requirements of a Tier 1 ERP system, it's a decision made in the immediate interest of officers and directors' continued, deliberate and destructive lack of profitability and accountability. As with so much of their activities, it’s specious. SAP will also be the least costly in the short term, however far more consequential to the industry's profitability, accountability and prosperity. To suggest that People, Ideas & Objects may benefit from the producer firms' decision is an argument that doesn’t comprehend the value destroyed by this deliberate bureaucratic sloth. It also doesn’t understand the relationship People, Ideas & Objects have with producer bureaucrats.

OCI Knowledge & Learning, Part VII

 Markets Replacing Bureaucracies

We see with the decline in natural gas prices that the bureaucracy is not attuned to the market or the “price” system. Officers and directors are more comfortable when they have control of everything and it operates as it should. Unfortunately for them the scope of their authority is not as broad as it once was. What other areas has the market sent price signals that officers and directors refuse to hear? We can only imagine. The fact of the matter is that the oil & gas producer and the Joint Operating Committee need to be attuned to the marketplace to better understand their business. They also need better Information Technologies so that they can know that they are not making any money on natural gas that sells below $6.00. In the last item of this next paragraph, we 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 nature of bureaucracies not to listen to markets. If natural gas prices hit $2.15, it is simply a matter of ignoring these signals and producing as usual. That’s the solution. The aim is to create sympathy for poor earnings by looking like a deer caught in the headlights. Langlois believes the Visible Hand of management is replaced by the Vanishing Hand of the marketplace. I would suggest that in oil & 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 captures the essence of what the oil & gas industry needs to grow and prosper. These elements are captured in the Research & Capabilities and Knowledge & Learning modules 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.

When an earth scientist or engineer can deploy a capability with the ease of calling a play, as in our football analogy. This is the opportunity in the Preliminary Specification. Economic growth results. Having a listing of the capabilities available from the participating producers of the Joint Operating Committee. The Knowledge & Learning module offers economic opportunities. Seeing that producer X has developed an enhanced capability to conduct Y's operation may motivate the Joint Operating Committee to deploy the capability. This may enhance its production. 

If we look 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 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 producer overhead costs 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 how North American oil & gas is configured. In the past, it was how management provided value in the organization. That "high throughput production” is incapable of providing value today is a matter of the time and place we find ourselves in. Using the “high throughput production” model requires officers and directors to disregard the Joint Operating Committee as the key organizational construct of the oil & gas industry. It cannot do both. "High throughput production” requires operatorship to be granted to one partner for operation of the property. From Professor Langlois.

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 recognizes and supports the Joint Operating Committee. All the change elements are in place. Industry culture uses the Joint Operating Committee. This is an industry 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 emphasizes 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 officers and directors and move 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, the 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.

As a point of interest when I read this last quote I became concerned about the natural gas business in North America. The size of North American natural gas storage has become so large as to dwarf any real purpose for its existence. What appears to be another officer and director capital incineration project was the rushing in a few decades to overbuild natural gas storage facilities. The subsequent sale of the facilities to midstream companies has put the business out of reach. They've effectively become a competitor with immediate, high deliverability to urban markets. I originally wrote this argument in August 2012 when natural gas prices became depressed after the proliferation of shale gas and the global financial crisis in 2008. Whether it was the overbuilding of storage, the transfer of ownership into others hands, or the overbuilding of shale gas or an all of the above strategy. What we know since August 2012 is that natural gas pricing has declined so dramatically as to be surreal. Natural gas traditionally trades between 6 to 1 with oil prices. Has grown as high as 40 to 1 and we’ve heard not a single concern or mention of this issue outside of People, Ideas & Objects. Only we have a plan to restore natural gas prices to historic traditional levels. How can producers in a market economy get market prices for their products again? The answer is through an industry wide deployment of People, Ideas & Objects decentralized production model. 

Conclusion

As with the Research & Capabilities module, I am very satisfied with the Knowledge & Learning module content. It is through this module that we move knowledge to where decision rights reside, the Joint Operating Committee. In the latter part of the specification, we isolate and berate the officers and directors of the current oil & gas companies. Officers and directors have a unique characteristic that is easily identified and criticized. I for one am happy to initiate the discussion. But the larger point of discussion is the war between bureaucracy in every industry and 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. 

Knowledge-based systems fell out of favor several decades ago due to their inability to capture organizational needs. Professor Richard N. Langlois' research has defined organizational needs. Points such as the inability to capture tacit knowledge, moving decision rights to where knowledge exists and many of the other points he raises. These points we've incorporated into both the Research & Capabilities and Knowledge & Learning modules.

What is needed now is the creativity and innovation of our user community to implement their "knowledge, experience, skills and ideas" into the foundation these modules have established. Dynamic, innovative, accountable and profitable oil and gas producers desperately need them.

Software's role in society is increasing. We are still in the beginning stages of what can be done. For an industry such as oil & gas to continue 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. Our claim is that we provide oil & gas producers with the most profitable operations.

To begin with, we provide our software in the most cost-effective way possible. That is charging our subscriber base for one-time development costs. And secondly, higher economic output requires higher specialization and division of labor. To organize specialization and division of labor, it requires the use of the software specified in the Preliminary Specification. There is no other method to organize a higher level of specialization and division of labor. The hierarchy is exhausted. And lastly I should point out that $94 billion in 2012 lost revenues and profits due to not using the decentralized production model. These have proven to be annual losses incurred under the current administration. Nothing has been done to recognize, remediate or rehabilitate what is so obviously wrong with their administration. "Muddle through" is the solution to all their concerns.

When undertaking a large project such as the People, Ideas & Objects Preliminary Specification. And we have estimated the total software development cost of $15 billion U.S. in its first commercial release. There is a need to maintain a sense of urgency for the people involved through to the end of the project. As we know, most people will remain motivated as long as the money keeps flowing. So how do we ensure money flows? It is through the fact that we provide the most profitable means of oil & gas operations that we can motivate producers to maintain their sense of urgency. This is in keeping this project funded and moving forward to its conclusion. Their alternative is bureaucracy and we see how well they’re doing. Owning oil & gas assets may not be enough in the future. It will also be required to access software that makes the oil & gas asset profitable. This is the importance of software in today's society. 

People, Ideas & Objects is a derivative of Professor Paul Romer “New Growth Theory," which states that economic growth is the result of People, Ideas and Things. We just exchanged “things” for “objects” as we are object-based software developers. I highly recommend reading his interview on “New Growth Theory” ; it will provide you with an understanding of the theory and how it pertains to the Preliminary Specification. It indicates that we need the right institutions. “This new theory says technological change comes about with the right institutions.” Oil and gas being one of the most technical of all industries. I've indicated that we completed the Preliminary Specification in August 2012. We are pleased that we selected the name People, Ideas & Objects. We have incorporated Professor Romer's sharing model throughout the industry reorganization. Areas such as Cloud Administration & Accounting for Oil & Gas offer a single source of capabilities for North American producers. This shared facility reduces overhead substantially, and makes them variable based on profitable production. The news is that Professor Paul Romer won the Nobel Prize in 2018 for "New Growth Theory" which is captured in his paper "Endogenous Technical Change," and expressed in this 2000 Reason magazine article.

Within the Knowledge & Learning module we have the capabilities of the producer firms that participate 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 have in the makeup of the oil & gas industry. And to sum it all up, 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, thinking, generation of ideas, leadership, collaborating, deciding, learning to list only a few. It leaves memory and processing to 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 much of it involves blazing trails. People will need to work hard. The challenges and opportunities are of historical significance and will require dedication from many 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.

One of the difficulties we see in oil & gas is the systemic lack of accountability. Whether that is at the level of officers and directors and the inability to act. To hide in the crowd of other producers who pursue the same strategy of “muddle through” or migrate towards the same spending patterns. The same spending patterns are seen in natural gas storage, shale gas, shale oil, heavy oil or any other aspect of the business. This is until that newly formed business is over-built to such an extent that it is rendered useless. Officers and directors have been raised in this industry culture over four to five decades. Where the ability to account for a property's performance is lost in the hierarchy. Experiencing this culture through their formative years, these officers and directors assume the level of accountability they’ve provided throughout their careers will continue to be adequate. 

By recognizing the Joint Operating Committee operational decision-making authority. The processes and capabilities selected by the partnership in the Research & Capabilities and Knowledge & Learning modules will be made by those designated individuals of each of the participating producers. Therefore the "lessons learned" will be able to be captured and those that make the decisions will be able to deal with what was learned as a consequence of their actions. No one is looking for scalps, we are looking for an effective accountability process that will ensure that what is learned is built upon and any negative consequences can be avoided through duplication throughout the producer firm.

OCI Knowledge & Learning, Part VI

 Two Major Innovation Processes

We turn now to innovation with Professor Richard Langlois' paper “Innovation Process and Industrial Districts." There are two primary innovation processes 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 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 & engineering to the assets of the firm. These innovations are then refined to ensure that they are proven capabilities which the firm can deploy. They are then listed in the Dynamic Capabilities Interface, tagged with their characteristics, and deployed to their related and appropriate Joint Operating Committees. To ensure that no testing or development of the innovation is repeated in every Joint Operating Committee, only fully developed and 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 innovation process is contained within the Knowledge & Learning module of the Preliminary Specification. It is a hands-on, ad-hoc type of innovation due to evolving knowledge expected in the marketplace. Even with the tight operational control we will establish in the Knowledge & Learning module. It is possible and advantageous to have high levels of innovation within an organization. With a strong command and control environment the ability to get an operational command decision to introduce some updated tool, or procedure is easily attainable. It’s not like someone has to wander around looking for someone with authority to implement an idea. With Industrial Command & Control and the Job Order System it will be obvious who has the appropriate authority and responsibility for implementing an innovation. The Joint Operating Committee holds operational decision making authority and is motivated by financial gain.

Once any changes and innovations have been implemented in the Knowledge & Learning module it is necessary to assess their impact on the operation. Updates to the “Lessons Learned” interface will be necessary. This will ensure that the firm whose capability was used for the operation is informed of the updated innovation and its results. This will enable the producer to update their capability in their “Dynamic Capability Interface" for use elsewhere in their organization.

Operational Control and Freewheeling Markets

A recent McKinsey Newsletter begins with “In a world of unprecedented volatility, the unprepared will be sorely tested.” Let's hope that no oil & gas firms are caught unprepared without an innovative oil & gas ERP system like People, Ideas & Objects. As we enter the era of insatiable energy demand, with a fixed earth science & 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 using the People, Ideas & Objects Preliminary Specification. I believe it will be necessary to own the oil & gas asset, but also have access to the software that makes it profitable. Such are the times we find ourselves in. 

In his paper “Innovation Process and Industrial Districts” Professor Richard Langlois discusses Industrial Districts. 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 described 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 Industrial Districts 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 Industrial Districts. Because their customers can be better informed, firms in Industrial Districts need to keep up to date in order to maintain competitiveness. pp. 19 - 20.

In the previous quote the customer was the Joint Operating Committee. The expectation through the Research & Capabilities and Knowledge & Learning modules is that the marketplace or Industrial Districts will be state of the art in terms of their capabilities. And that may not be the case, and probably will not be. International firms operate in the service industry. And these form the foundations of Industrial Districts. The firms are usually local, and to assume they can organize themselves in a manner that optimizes the Joint Operating Committee needs is possibly incorrect. In a comment made to the editor of Capitalism and Society, Professor Richard N. Langlois wrote a comment in response to an argument made Professors Giovanni Dosi, Alfonso Gambardella, Marco Grazzi and Luigi Orsonigo (2008). 

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). p. 3.

Expecting the service industry to provide the Joint Operating Committee with “conscious organization” of disparate firms and organizations is incorrect from the point of view of operational control. The Knowledge & Learning “Planning & Deployment Interface” use of the Industrial Command & Control, AFE, and Job Order systems enables organization within the Industrial District. And in turn, it provides the Joint Operating Committee with... From Professor Langlois comment to Capitalism and Society.

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. pp. 3 - 4.

We are discussing the coordination of markets or service industries during a field operation. How the Joint Operating Committee organizes markets to ensure performance. We want to discuss the changes in roles and responsibilities within those markets and the Joint Operating Committee. How those changes came about and are implemented within the Joint Operating Committee. Through further specialization and division of labor, innovation is introduced into field operations. The Knowledge & Learning module of the Preliminary Specification uses Industrial Command & Control (ICC) to coordinate the markets. This will also reveal the "gaps" that need to be filled with innovative positions. From Professor Richard Langlois' paper “Economic Institutions and the Boundaries of the Firm: The Case of Business Groups.”

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 marketplace module (Resource, Petroleum Lease, Financial) there is a “Gap Filling” interface. These are for identifying and publishing “gaps” in market offerings. In addition, they publish ideas about 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 market participants they'll be populated with resources under Industrial Command & Control. This will assign roles and responsibilities within the chain of command for field operations. This is a manual and deliberate process. It is not spontaneous as we might think 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 for the oil & gas industry to become more productive. That is through specialization and the division of labor. Particularly in the earth science & 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. This has been done through specialization and the division of labor. To approach this issue without ERP software in this day and age would be the same as using stone age tools. The effect of pooling the technical resources of the participants in the Joint Operating Committee is the beginning of specialization and division of labor. This is necessary to increase industry 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 labor” 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 module name. Even though it appears to pursue both operational excellence and innovation simultaneously. There is a time element where operational control fixes all variables and locks them down. That is a time when operations are conducted for 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.

OCI Knowledge & Learning, Part V

 Change and Cognitive Dissonance

We continue our discussion of the forces of change in the Knowledge & Learning module. We discuss inertia and equilibrium and how they’re 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 came about because our society is very advanced and increasing our performance requires the necessary software in place first. Without software in place no change or improvement in performance will occur. Officers and directors in the oil & gas industry know this and use it to ensure their current positions are never challenged. They’ve done this by never changing their ERP software. Or they have implemented SAP to reinforce their methods. This has made it particularly difficult 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 oil & gas producers? In an era of insatiable energy demand, what is oil & gas producers' vision? These are questions best left to others to answer. All I can do is continue to offer 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 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, 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 the transition to the environment described in the Preliminary Specification. This is despite officers and directors' actions. 

I am also operating from two fundamental assumptions that lead me to conclude that these changes will occur. That the stuffing of another ream of paper in the printer is how the system is fed in today’s oil & gas industry. That is, the ERP systems that operate today are woefully inadequate for the needs in the era of insatiable energy demand in which we’re about to find ourselves in. These systems have no future. And that high levels of cognitive dissonance occur when people read the Preliminary Specification. That is to say it resonates with their understanding of what an oil & 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 results 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 officers and directors need 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 shows $94 billion in incremental revenues and profits irretrievably lost for the 2012 calendar year. Similar revenue losses will be incurred each year this bureaucracy is in place. Which in 2023, when seen through producers specious accounting, is valid. Continued operations in the face of such value destruction has set the stage for "vigorous displacement.”

They, the officers and directors, have effectively mismanaged the oil & gas business in North America. In the oil & gas industry, "inertia" is strong, as shown by the deer in the headlights' response to collapsed natural gas and chronically depressed oil prices. It is to muddle along. Take what is given and survive another day. Is this the appropriate footing for an innovative oil & gas producer in the era of insatiable energy demand? With the rapid depletion and high costs of reworking shale gas reserves, there must 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 for the bureaucrats to retire to Florida permanently. They have forcefully resisted People, Ideas & Objects at every opportunity. And as indicated, unchangeable organizational structures were implemented. I don’t see any opportunity for cooperation, nor the need for cooperation. This can be done by the people who make the industry work. Entrepreneurs, movers and shakers and people who know there is a better way. The alternative to the Preliminary Specification has been a slow and painful atrophy. Intermixed with the bureaucrats' secondary business model of repeated bankruptcy.

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.

There is a perception that moving away from the status quo bureaucracy will be difficult. How that transition occurs is through two possible alternatives. Existing producers can atrophy and die slowly. Or alternatively, the decision can be made to build the Preliminary Specification and move to the Joint Operating Committee, People, Ideas & Objects key Organizational Construct. There are seven Organizational Constructs that establish an innovative, performance and profitability culture in oil & gas. The decision to make the change is the appropriate choice to make, however there are other considerations to be made.

One of those considerations is the inertia within the current institutions. Many producers were developed in an era of low energy prices where survival skills were needed. Innovation was not rewarded and did not exist within the producer firm itself. Now that we are within reach of the era of insatiable energy demand, innovation is the key. This must become the firm's culture. Therefore in the Knowledge & Learning and other modules of the Preliminary Specification, whether it is by accident or by deliberate decision, the development of the innovative culture and the Preliminary Specification will always be an “outside” of the mainstream kind of development. Transitioning between these two eras would be difficult for any business to deal with. It is now clear that oil & gas can’t, won’t and will not ever make such a radical change to their underlying business. Higher commodity prices are the source of financial resources to support an innovative oil & gas industry. This is the polar opposite of the skills necessary to prosper in the survival, or low energy price era. Industry's counter argument is that they’re highly innovative. Which is incorrect. Any and all innovations can be identified and sourced directly from the service industry, not the producers.

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 behavior 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 accounting floor plan. Using the Joint Operating Committee and adopting the Preliminary Specification, we are making wholesale changes to the oil & gas industry. Change that is as significant as energy prices and the global demand structure. This will not be done successfully in a way 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. It's at 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 oil & gas business refused to change, and change will be 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.

As I have suggested, People, Ideas & Objects will be there one way or the other. 

One More Kick at the Bureaucracy

It is at the Joint Operating Committee that bureaucracy has little to do. Therefore it seems opportune to discuss the fact that the bureaucracy needs to fade from the scene for 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 is a brief review of Professor Alfred P. Chandler's work through Professor Richard Langlois' writings in “Chandler in a Larger Frame: Markets, Transaction Costs, and Organizational Form in History.”

It is at the Joint Operating Committee that all industry business is conducted. That is to say that most field operations are commanded and controlled as proposed in 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. We can be certain that the bureaucracy will assert that they need such and such a report by midnight. Let's be mindful of their ways and means and ensure that doesn’t happen. 

One group that People, Ideas & Objects directed our message to is oil & gas industry investors. As Professor Chandler notes in his work, capital starts everything. Chandler's review of corporate history shows merchants' role. Investing their capital and skills, merchants started the ball rolling. I see no reason why we can’t turn to oil & gas investors in the same way. I expect that they will lead in this next phase of the industry. 

After all it is the investors who have the most to lose. Bureaucracy has no stake in the firm. If a crisis strikes a firm, bureaucracy resumes elsewhere. Investors will shoulder the costs. Bureaucracy currently holds the reins, and they know their options exist elsewhere. Ownership, like 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 had failed before. During the great depression, a time when the government had to increase its involvement in the economy. Bureaucracy may not see the larger picture, and fail again. Since 2008 we've seen many changes. The oil & gas industry has certainly changed. Information technology is also having an effect. The time to act is now as there is much work to do.

OCI Knowledge & Learning, Part IV

 Defining Tacit and Explicit Knowledge

We now want to discuss how capabilities are viewed by the users of the information in the interfaces of the Knowledge & Learning module of the Preliminary Specification. A capability listed within the "Dynamic Capability Interface" would contain a great deal of information regarding the operation. It would be inefficient to have everyone reading the same text repeatedly. And that is why we have computers. We want to also discuss the different types of knowledge (tacit and explicit, or formal knowledge) and note the deficiencies in recording tacit knowledge. I’ll quote Professor Richard Langlois’ paper “Transaction Cost Economics in Real Time." 

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

When the user is presented with a view of the capabilities within the “Planning & Deployment Interface” they are provided with several different views of the same data. One is the comprehensive view of the capabilities (explicit knowledge) which includes the full extent of the capabilities. Another is just the changes since the last time the user viewed the document. This can be presented to the user by fading the already viewed text by 50% so that only the updated information stands out. Leaving the user to learn just what has changed in the capabilities since the last time they were seen. There should also be annotations for the user to learn who authored the changes and when they were authored. This is so that if there are any follow up questions they’ll know who to contact. Please see the Blockchain module for this feature implementation.

A capability includes explicit knowledge of the operation as well as information about who is responsible for tacit knowledge. Having this information updated by reviewing only the clear text will enable the user to get up to speed on the changes within seconds. Since the capabilities will be the source for all of the people who are working on the operation, everyone will be on the “same page” in terms of the most up to date capabilities and the individuals who are responsible for them. 

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

Getting a handle on these interfaces is vital to a dynamic, innovative, accountable and profitable oil & gas producer. Although this may seem like an academic exercise to some, they are core to the Joint Operating Committee and the producer's values. It is the actions and interactions that are derivative of these capabilities that will determine the success or failure of an innovative and profitable oil & gas firm. 

In a metaphoric sense, at least, the capabilities of the organization are more than the sum (whatever that means) of the 'skill' of the firm’s physical capital, there is also the matter of organization. How the firm is organized - how the routines of the humans and machines are linked together - is also part of a firm's capabilities. Indeed, 'skills, organization, and technology are intimately intertwined in a functioning routine, and it is difficult to say exactly where one aspect ends and another begins' (Nelson and Winter, 1982, p. 104). p. 106.

And

But often - and especially when innovation is involved - the links among firms are of a more complex sort, involving everything from informal swaps of information (von Hippel, 1989) to joint ventures and other formal collaborative arrangements (Mowery, 1989). All firms must rely on the capabilities owned by others, especially to the extent those capabilities are dissimilar to those the firm possesses. p. 108.

It should be noted that each capability listed in the “Dynamic Capabilities Interface” is assigned a unique number distinct within the oil & gas industry. That way when they are presented to the Joint Operating Committee there will be no confusion as to the number of the capability selected. This technically isn’t an issue, however, with the interactions between multiple producers in multiple Joint Operating Committees it is a necessity. 

Additionally, we can use the football analogy to describe how a property employs X capability. Everyone has access to that capability and can review the explicit information contained within the document. This includes engineers and geologists from the various producer firms that participate in the Joint Operating Committee. It also includes field operations representatives contracted to provide services. Everyone works from the “same page” in terms of operations expectations. 

Upon selection of X capability, people's roles and responsibilities are assigned through Industrial Command & Control through the "Planning & Deployment Interface." This will impose a chain of command on how the operation is run and who has what authority over what operation. Additionally the AFE associated with the operation will be included with the “Planning & Deployment Interface'' to impose budgetary control over the operation. Lastly the Job Order system is made available to implement the commands to execute the operation. It is here, the “Planning & Deployment Interface'' where the operational budget, command and control, execution and authorization are planned for and managed. As we have mentioned elsewhere, innovation and free markets are what we seek to establish in the service industry and the greater oil & gas industry. This however does not preclude high levels of tight operational control during large, costly, critical science and technologically based operations. 

The People, Ideas & Objects Preliminary Specification moves the innovative and profitable oil & gas producer to the “decentralized production model," where the ability to shut in marginal production is possible during times of volatile energy prices. The decentralized production model, as we have discussed in other modules, also reduces shut-in productions royalty, operational and overhead costs to zero. It is during these times of low oil & gas prices that the Joint Operating Committee can review the capabilities provided to it by the participating producers in the “Dynamic Capabilities Interface.” This review will be to determine which capabilities can be deployed that will reduce the Joint Operating Committee cost of operation, or enhance the revenues and return the property to production and profitability sooner. Operational control, review and deployment of the participating producers' state of the art capabilities are two of the key attributes of the Knowledge & Learning module.

Professor Richard Langlois' paper entitled “Chandler in a Larger Frame: Markets, Transaction Costs, and Organization Form in History.” Provides us with a focus on tacit knowledge and how that is handled in the Knowledge & Learning module of the Preliminary Specification. Recall that tacit knowledge cannot be captured in the “Dynamic Capabilities Interface" or anywhere. Only explicit knowledge can be recorded. The fact that you can only record “textbook” knowledge is a limitation that all systems must deal with. The knowledge captured in the “Dynamic Capabilities Interface” is very rich and includes the information necessary to undertake the operation from the point of view of all of the people involved. Included in that information are the roles and responsibilities of the individuals who will be in charge and control of the operation. They are the ones with tacit knowledge of the operation.

A brief note to mention in the Preliminary Specification. Our software will capture the implicit knowledge of industry administration & accounting. And our user communities service provider organizations will deliver our software in combination with their tacit knowledge in the form of their services. From Professor Richard Langlois’ paper “Capabilities and Governance the Rebirth of Production in the Theory of Economic Organization.”

Much knowledge - including, importantly, much knowledge about production - is tacit and can be acquired only through a time-consuming process of learning by doing. Moreover, knowledge about production is often essentially distributed knowledge: that is to say, knowledge that is only mobilized in the context of carrying out a multi-person productive task, that is not possessed by any single agent, and that normally requires some sort of qualitative coordination - for example, through direction and command - for its efficient use. pp. 13 - 14.

Direction, or command and control, is exercised through Industrial Command & Control, the AFE associated with the operation and the Job Order System of People, Ideas & Objects Preliminary Specification. Having these three tools available allows tacit knowledge to be deployed in a highly controlled environment. With Industrial Command & Control, multi-person tacit knowledge can be mobilized and coordinated effectively. The AFE controls the program budget. And the Job Order System enables the execution and documentation of individual orders and commands. The “Dynamic Capability Interface'' provides the resource for all people to determine their role and responsibility. This will ensure everyone is on the same page regarding the operation's objectives and deliverables. Lastly, any element of the Preliminary Specification will be able to be right clicked to invoke an accounting or administration process that a user may need to support the operation. An example might be a dynamically generated, or live, actual cost to date for AFEs.

In a world of tacit and distributed knowledge - that is, of differential capabilities - having the same blueprints as one competitor is unlikely to translate into having the same costs of production. Generally, in such a world, firms will not confront the same production costs for the same type of productive activity. Moreover, the costs that can make transacting difficult, and may lead to internalization, can go beyond those that arise in the course of safeguarding against opportunism or damping moral hazard through monitoring or incentive contracts. In such a world, economic activity may be afflicted with "dynamic transaction costs," the costs that arise in real time in the process of acquiring and coordinating productive knowledge. (Langlois 1992; Langlois and Robertson 1995) and which are different in nature from the transaction costs that are caused by problems of aligning incentives. This, in turn, implies that capabilities may be interpreted as a distinct theory of economic organization.pp. 14 - 15.

Members of one firm may quite literally not understand what another firm wants from them (for example, in supplier contracts) or is offering them (for example, in license contracts). In this setting, the costs of making contacts with potential partners, of educating potential licensees and franchisees, of teaching suppliers what it is one needs from them, and the like become very real factors determining where the boundaries between firms will emerge. p. 19.

We should remember that participants in any operation come from a variety of organizations. They will be due to a pooling of partnerships represented by the Joint Operating Committee. And the representatives of the field service industry who provide services to the operation. All of these people have the tacit knowledge necessary for the operation to succeed. It needs to be coordinated and directed to be effective. It is with these four tools - the “Dynamic Capabilities Interface,” the Industrial Command & Control, the AFE and the Job Order System of the Preliminary Specifications Knowledge & Learning module that tight operational control of any oil & gas operation will be available to the Joint Operating Committee. 

Learning, Then Operational Control

Having tight operational control during operations leads to a situation where learning opportunities may seem limited. However, the very temporary nature of the operation should lead to marketplace dynamics providing for further learning opportunities. Quotations in this section will be from Professor Richard Langlois’ paper “Transaction Cost Economics in Real Time." 

A market form of organization is capable of learning and creating new capabilities, often in a self reinforcing and synergistic way. Marshall describes just such a system when he talks about the benefits of localized industry. (Marshall, 2961, IV .x.3, p. 271) p. 120.

In many ways the characteristics of a learning environment are different from those of an environment designed for operational control. Professor Langlois talks about getting everyone on the same wavelength as one of the objectives of operational coordination. And we have done that by unifying everyone around the capabilities in the “Dynamic Capabilities Interface." This is counter to learning organizations' needs. 

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

So how are these two opposing and contradictory objectives paired together in one module? There are phases of when the team is put together, understanding what the operation is and learning the capabilities to be deployed. Bringing in the latest field operations staff and equipment for the job. These are times when learning occurs throughout the group. Then the operational control phase begins in which nothing but the plan's execution is the group's concern. Learning is over when this happens. There is however, a point at the end of the operation in which the group should input the lessons they learned into the “Lessons Learned Interface." 

How would learning proceed in a system of decentralized capabilities? As I have already suggested, progress would take place autonomously within the decentralized stages. There would be no need for integration unless a systemic innovation offering superior performance arrives on the scene. Indeed, as we have seen, fixed task boundaries and standardized connections between stages might make innovation difficult with the existing structure, requiring a kind of creative destruction. (Schumpeter, 1950). p. 121.

As members of the Joint Operating Committee, the "Lessons Learned Interface" is presented to them. Results are also presented in both the Research & Capabilities and Compliance & Governance modules of the producer firm who initiated the capability. This is for all Joint Operating Committees the producer participates in. The "Dynamic Capabilities Interface" allows them to update specific capabilities. Members of the governance team can see if systemic errors are made throughout the organization. 

Although they are at opposite ends of the innovation scale. Operational control and learning within one module make sense when feedback from those operations is critical to future operations. Learning is a part of innovation and it must update the firm's capabilities and Joint Operating Committees to build value over the long term.

Specialization and the Division of Labor

We want to discuss specialization and the division of labor with respect to the Joint Operating Committee. We also want to discuss what we can expect in the future as a result of demands for more energy. Quotations in this section will be from Professor Richard Langlois’ paper “The Vanishing Hand: The Changing Dynamics of Industrial Capitalism."

It will be through the “Dynamic Capabilities Interface” that the specialization and division of labor is most apparent. The volume of vendors and suppliers used to conduct an operation will be higher than currently. Through the further specialization of tasks in the field, the Dynamic Capabilities Interface will need to capture the explicit knowledge of those in the field. This specialization and division of labor is necessary for an expansion in economic output.

The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates. p. 3.

I would suggest that the extent of possible changes in the current market is constrained by current ERP technologies. Having SAP or other ERP systems that do not focus on capabilities or specialization is the issue. When we look at modules like the Resource Marketplace module of the Preliminary Specification and see the “Gap Filling Interface” and note that its sole purpose is to expand the division of labor and specialization in the Resource Marketplace. In order for these interactions to develop, these constraints imposed by ERP systems must be lifted. 

But with further growth in the extent of the market and the evolution of institutions to support exchange, the central management of vertically integrated production stages is increasingly succumbing to the forces of specialization. pp. 3 - 4.

Rather it is an argument that, in a population sense, large vertically integrated firms are becoming less significant and are joining a richer mix of organizational forms. p. 4.

We have with the Preliminary Specification the coordination of the operation in the Knowledge & Learning module by the Joint Operating Committee. We also have the full extent and encouragement of the market in the Resource Marketplace module. It is not by accident that these two modules work together to provide both rich markets and strong operational control for the Joint Operating Committee. 

Industrial structure, then, is really about two interrelated but conceptually distinct systems: the technology of production and the organizational structure that directs production. pp. 6.

Industrial structure is an evolutionary design problem. pp. 6.

It was one of the founding insights of transaction-cost economics that the technological system does not fully determine the organizational system (Williamson 1975). Organization's - governance structure - bring with them their own costs, which need to be taken into account. But technology clearly affects organization. pp. 6.

Like a biological organism, an organization confronts an environment that is changing, variable and uncertain. pp. 6.

Also like biological organisms, business organizations differ in the mechanisms they use to process information and to deal with variation and uncertainty. Nonetheless, as James Thompson (1967, p. 20) argued, all organizations respond to a changing environment by seeking to "buffer environmental influences by surrounding their technical cores with input and output components." pp. 7.

Or as we like to say, SAP is the bureaucracy. To enable the market, specialization, the division of labor and the coordination of operations require technology and organization. We can all agree that the Joint Operating Committee is the key organizational construct of a dynamic, innovative, accountable and profitable oil & gas producer. It is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of an innovative producer. 

The Joint Operating Committee will coordinate field operations. Furthermore, the People, Ideas & Objects Preliminary Specification needs to identify and support these markets and changes. We want to discuss how these changes will come about and the probable speed at which they will occur. This is given that everything these markets needed in terms of market supporting institutions was available. Quotations come from Professor Richard Langlois' paper “Institutions, Inertia and Changing Industrial Leadership.”

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

It is profit motivated service providers and service industry participants that see the opportunity to make a substantial change for their clients and their own situation. One that is more enduring and profitable. That is the motivation for the change that will transition these groups to the marketplace. They will see alternative ways of organizing their firms, or have firms start up. This will provide for further specialization of their skills, experience and knowledge. 

Thus the vanishing hand is driven not just by changes in coordination technology but also by changes in the extent of markets - by increasing population and income, but also by the globalization of markets. Reductions of political barriers to trade around the world are having an effect analogous to the reduction of technological barriers to trade in the America of the nineteenth century (Findlay and O'Rourke 2002). Is this a revolution or the continuation of a long - standing trend? Again, the answer depends on one's perspective. My argument is that, just as the American "globalization" after the Civil War was revolutionary in its systemic reorganization of production toward standardization and volume, the new era is revolutionary in its systemic de-verticalization in response both to changes in coordination technology and to plain-old increases in the extent of markets. pp. 52 - 53.

As we’ve discussed, these markets must have a dedicated software development team to support growth and change. The Joint Operating Committee, the producer firm and the service industry marketplace all need People, Ideas & Objects available to change the software to meet these growing and dynamic needs. Without the ability to change technology, organizations will remain stagnant and unchanged. Despite the demands for change nothing will happen without software modification first.