Ralph Waldo Emerson, Man the Reformer.

The Christmas tradition of this blog is to post a pertinent writing of my favorite author Ralph Waldo Emerson. This years contribution is entitled Man the Reformer and was a lecture to the Mechanics Apprentices Library Association in Boston on January 25, 1841. This will be the last post of 2008 and I will return to writing on January 5, 2009. Merry Christmas to all and a happy New Year.

Mr. President, and Gentlemen,

I wish to offer to your consideration some thoughts on the particular and general relations of man as a reformer. I shall assume that the aim of each young man in this association is the very highest that belongs to a rational mind. Let it be granted, that our life, as we lead it, is common and mean; that some of those offices and functions for which we were mainly created are grown so rare in society, that the memory of them is only kept alive in old books and in dim traditions; that prophets and poets, that beautiful and perfect men, we are not now, no, nor have even seen such; that some sources of human instruction are almost unnamed and unknown among us; that the community in which we live will hardly bear to be told that every man should be open to ecstasy or a divine illumination, and his daily walk elevated by intercourse with the spiritual world. Grant all this, as we must, yet I suppose none of my auditors will deny that we ought to seek to establish ourselves in such disciplines and courses as will deserve that guidance and clearer communication with the spiritual nature. And further, I will not dissemble my hope, that each person whom I address has felt his own call to cast aside all evil customs, timidities, and limitations, and to be in his place a free and helpful man, a reformer, a benefactor, not content to slip along through the world like a footman or a spy, escaping by his nimbleness and apologies as many knocks as he can, but a brave and upright man, who must find or cut a straight road to everything excellent in the earth, and not only go honorably himself, but make it easier for all who follow him, to go in honor and with benefit.

In the history of the world the doctrine of Reform had never such scope as at the present hour. Lutherans, Hernhutters, Jesuits, Monks, Quakers, Knox, Wesley, Swedenborg, Bentham, in their accusations of society, all respected something, -- church or state, literature or history, domestic usages, the market town, the dinner table, coined money. But now all these and all things else hear the trumpet, and must rush to judgment, -- Christianity, the laws, commerce, schools, the farm, the laboratory; and not a kingdom, town, statute, rite, calling, man, or woman, but is threatened by the new spirit.

What if some of the objections whereby our institutions are assailed are extreme and speculative, and the reformers tend to idealism; that only shows the extravagance of the abuses which have driven the mind into the opposite extreme. It is when your facts and persons grow unreal and fantastic by too much falsehood, that the scholar flies for refuge to the world of ideas, and aims to recruit and replenish nature from that source. Let ideas establish their legitimate sway again in society, let life be fair and poetic, and the scholars will gladly be lovers, citizens, and philanthropists.

It will afford no security from the new ideas, that the old nations, the laws of centuries, the property and institutions of a hundred cities, are built on other foundations. The demon of reform has a secret door into the heart of every lawmaker, of every inhabitant of every city. The fact, that a new thought and hope have dawned in your breast, should apprize you that in the same hour a new light broke in upon a thousand private hearts. That secret which you would fain keep, -- as soon as you go abroad, lo! there is one standing on the doorstep, to tell you the same. There is not the most bronzed and sharpened money-catcher, who does not, to your consternation, almost, quail and shake the moment he hears a question prompted by the new ideas. We thought he had some semblance of ground to stand upon, that such as he at least would die hard; but he trembles and flees. Then the scholar says, `Cities and coaches shall never impose on me again; for, behold every solitary dream of mine is rushing to fulfilment. That fancy I had, and hesitated to utter because you would laugh, -- the broker, the attorney, the market-man are saying the same thing. Had I waited a day longer to speak, I had been too late. Behold, State Street thinks, and Wall Street doubts, and begins to prophesy!'

It cannot be wondered at, that this general inquest into abuses should arise in the bosom of society, when one considers the practical impediments that stand in the way of virtuous young men. The young man, on entering life, finds the way to lucrative employments blocked with abuses. The ways of trade are grown selfish to the borders of theft, and supple to the borders (if not beyond the borders) of fraud. The employments of commerce are not intrinsically unfit for a man, or less genial to his faculties, but these are now in their general course so vitiated by derelictions and abuses at which all connive, that it requires more vigor and resources than can be expected of every young man, to right himself in them; he is lost in them; he cannot move hand or foot in them. Has he genius and virtue? the less does he find them fit for him to grow in, and if he would thrive in them, he must sacrifice all the brilliant dreams of boyhood and youth as dreams; he must forget the prayers of his childhood; and must take on him the harness of routine and obsequiousness. If not so minded, nothing is left him but to begin the world anew, as he does who puts the spade into the ground for food. We are all implicated, of course, in this charge; it is only necessary to ask a few questions as to the progress of the articles of commerce from the fields where they grew, to our houses, to become aware that we eat and drink and wear perjury and fraud in a hundred commodities. How many articles of daily consumption are furnished us from the West Indies; yet it is said, that, in the Spanish islands, the venality of the officers of the government has passed into usage, and that no article passes into our ships which has not been fraudulently cheapened. In the Spanish islands, every agent or factor of the Americans, unless he be a consul, has taken oath that he is a Catholic, or has caused a priest to make that declaration for him. The abolitionist has shown us our dreadful debt to the southern negro. In the island of Cuba, in addition to the ordinary abominations of slavery, it appears, only men are bought for the plantations, and one dies in ten every year, of these miserable bachelors, to yield us sugar. I leave for those who have the knowledge the part of sifting the oaths of our custom-houses; I will not inquire into the oppression of the sailors; I will not pry into the usages of our retail trade. I content myself with the fact, that the general system of our trade, (apart from the blacker traits, which, I hope, are exceptions denounced and unshared by all reputable men,) is a system of selfishness; is not dictated by the high sentiments of human nature; is not measured by the exact law of reciprocity; much less by the sentiments of love and heroism, but is a system of distrust, of concealment, of superior keenness, not of giving but of taking advantage. It is not that which a man delights to unlock to a noble friend; which he meditates on with joy and self-approval in his hour of love and aspiration; but rather what he then puts out of sight, only showing the brilliant result, and atoning for the manner of acquiring, by the manner of expending it. I do not charge the merchant or the manufacturer. The sins of our trade belong to no class, to no individual. One plucks, one distributes, one eats. Every body partakes, every body confesses, --with cap and knee volunteers his confession, yet none feels himself accountable. He did not create the abuse; he cannot alter it. What is he? an obscure private person who must get his bread. That is the vice, -- that no one feels himself called to act for man, but only as a fraction of man. It happens therefore that all such ingenuous souls as feel within themselves the irrepressible strivings of a noble aim, who by the law of their nature must act simply, find these ways of trade unfit for them, and they come forth from it. Such cases are becoming more numerous every year.

But by coming out of trade you have not cleared yourself. The trail of the serpent reaches into all the lucrative professions and practices of man. Each has its own wrongs. Each finds a tender and very intelligent conscience a disqualification for success. Each requires of the practitioner a certain shutting of the eyes, a certain dapperness and compliance, an acceptance of customs, a sequestration from the sentiments of generosity and love, a compromise of private opinion and lofty integrity. Nay, the evil custom reaches into the whole institution of property, until our laws which establish and protect it, seem not to be the issue of love and reason, but of selfishness. Suppose a man is so unhappy as to be born a saint, with keen perceptions, but with the conscience and love of an angel, and he is to get his living in the world; he finds himself excluded from all lucrative works; he has no farm, and he cannot get one; for, to earn money enough to buy one, requires a sort of concentration toward money, which is the selling himself for a number of years, and to him the present hour is as sacred and inviolable as any future hour. Of course, whilst another man has no land, my title to mine, your title to yours, is at once vitiated. Inextricable seem to be the twinings and tendrils of this evil, and we all involve ourselves in it the deeper by forming connections, by wives and children, by benefits and debts.

Considerations of this kind have turned the attention of many philanthropic and intelligent persons to the claims of manual labor, as a part of the education of every young man. If the accumulated wealth of the past generations is thus tainted, -- no matter how much of it is offered to us, -- we must begin to consider if it were not the nobler part to renounce it, and to put ourselves into primary relations with the soil and nature, and abstaining from whatever is dishonest and unclean, to take each of us bravely his part, with his own hands, in the manual labor of the world.

But it is said, `What! will you give up the immense advantages reaped from the division of labor, and set every man to make his own shoes, bureau, knife, wagon, sails, and needle? This would be to put men back into barbarism by their own act.' I see no instant prospect of a virtuous revolution; yet I confess, I should not be pained at a change which threatened a loss of some of the luxuries or conveniences of society, if it proceeded from a preference of the agricultural life out of the belief, that our primary duties as men could be better discharged in that calling. Who could regret to see a high conscience and a purer taste exercising a sensible effect on young men in their choice of occupation, and thinning the ranks of competition in the labors of commerce, of law, and of state? It is easy to see that the inconvenience would last but a short time. This would be great action, which always opens the eyes of men. When many persons shall have done this, when the majority shall admit the necessity of reform in all these institutions, their abuses will be redressed, and the way will be open again to the advantages which arise from the division of labor, and a man may select the fittest employment for his peculiar talent again, without compromise.

But quite apart from the emphasis which the times give to the doctrine, that the manual labor of society ought to be shared among all the members, there are reasons proper to every individual, why he should not be deprived of it. The use of manual labor is one which never grows obsolete, and which is inapplicable to no person. A man should have a farm or a mechanical craft for his culture. We must have a basis for our higher accomplishments, our delicate entertainments of poetry and philosophy, in the work of our hands. We must have an antagonism in the tough world for all the variety of our spiritual faculties, or they will not be born. Manual labor is the study of the external world. The advantage of riches remains with him who procured them, not with the heir. When I go into my garden with a spade, and dig a bed, I feel such an exhilaration and health, that I discover that I have been defrauding myself all this time in letting others do for me what I should have done with my own hands. But not only health, but education is in the work. Is it possible that I who get indefinite quantities of sugar, hominy, cotton, buckets, crockery ware, and letter paper, by simply signing my name once in three months to a cheque in favor of John Smith and Co. traders, get the fair share of exercise to my faculties by that act, which nature intended for me in making all these far-fetched matters important to my comfort? It is Smith himself, and his carriers, and dealers, and manufacturers, it is the sailor, the hidedrogher, the butcher, the negro, the hunter, and the planter, who have intercepted the sugar of the sugar, and the cotton of the cotton. They have got the education, I only the commodity. This were all very well if I were necessarily absent, being detained by work of my own, like theirs, work of the same faculties; then should I be sure of my hands and feet, but now I feel some shame before my wood-chopper, my ploughman, and my cook, for they have some sort of self-sufficiency, they can contrive without my aid to bring the day and year round, but I depend on them, and have not earned by use a right to my arms and feet.

Consider further the difference between the first and second owner of property. Every species of property is preyed on by its own enemies, as iron by rust; timber by rot; cloth by moths; provisions by mould, putridity, or vermin; money by thieves; an orchard by insects; a planted field by weeds and the inroad of cattle; a stock of cattle by hunger; a road by rain and frost; a bridge by freshets. And whoever takes any of these things into his possession, takes the charge of defending them from this troop of enemies, or of keeping them in repair. A man who supplies his own want, who builds a raft or a boat to go a fishing, finds it easy to caulk it, or put in a thole-pin, or mend the rudder. What he gets only as fast as he wants for his own ends, does not embarrass him, or take away his sleep with looking after. But when he comes to give all the goods he has year after year collected, in one estate to his son, house, orchard, ploughed land, cattle, bridges, hardware, wooden-ware, carpets, cloths, provisions, books, money, and cannot give him the skill and experience which made or collected these, and the method and place they have in his own life, the son finds his hands full, -- not to use these things, -- but to look after them and defend them from their natural enemies. To him they are not means, but masters. Their enemies will not remit; rust, mould, vermin, rain, sun, freshet, fire, all seize their own, fill him with vexation, and he is converted from the owner into a watchman or a watch-dog to this magazine of old and new chattels. What a change! Instead of the masterly good humor, and sense of power, and fertility of resource in himself; instead of those strong and learned hands, those piercing and learned eyes, that supple body, and that mighty and prevailing heart, which the father had, whom nature loved and feared, whom snow and rain, water and land, beast and fish seemed all to know and to serve, we have now a puny, protected person, guarded by walls and curtains, stoves and down beds, coaches, and men-servants and women-servants from the earth and the sky, and who, bred to depend on all these, is made anxious by all that endangers those possessions, and is forced to spend so much time in guarding them, that he has quite lost sight of their original use, namely, to help him to his ends, -- to the prosecution of his love; to the helping of his friend, to the worship of his God, to the enlargement of his knowledge, to the serving of his country, to the indulgence of his sentiment, and he is now what is called a rich man, -- the menial and runner of his riches.

Hence it happens that the whole interest of history lies in the fortunes of the poor. Knowledge, Virtue, Power are the victories of man over his necessities, his march to the dominion of the world. Every man ought to have this opportunity to conquer the world for himself. Only such persons interest us, Spartans, Romans, Saracens, English, Americans, who have stood in the jaws of need, and have by their own wit and might extricated themselves, and made man victorious.

I do not wish to overstate this doctrine of labor, or insist that every man should be a farmer, any more than that every man should be a lexicographer. In general, one may say, that the husbandman's is the oldest, and most universal profession, and that where a man does not yet discover in himself any fitness for one work more than another, this may be preferred. But the doctrine of the Farm is merely this, that every man ought to stand in primary relations with the work of the world, ought to do it himself, and not to suffer the accident of his having a purse in his pocket, or his having been bred to some dishonorable and injurious craft, to sever him from those duties; and for this reason, that labor is God's education; that he only is a sincere learner, he only can become a master, who learns the secrets of labor, and who by real cunning extorts from nature its sceptre.

Neither would I shut my ears to the plea of the learned professions, of the poet, the priest, the lawgiver, and men of study generally; namely, that in the experience of all men of that class, the amount of manual labor which is necessary to the maintenance of a family, indisposes and disqualifies for intellectual exertion. I know, it often, perhaps usually, happens, that where there is a fine organization apt for poetry and philosophy, that individual finds himself compelled to wait on his thoughts, to waste several days that he may enhance and glorify one; and is better taught by a moderate and dainty exercise, such as rambling in the fields, rowing, skating, hunting, than by the downright drudgery of the farmer and the smith. I would not quite forget the venerable counsel of the Egyptian mysteries, which declared that "there were two pairs of eyes in man, and it is requisite that the pair which are beneath should be closed, when the pair that are above them perceive, and that when the pair above are closed, those which are beneath should be opened." Yet I will suggest that no separation from labor can be without some loss of power and of truth to the seer himself; that, I doubt not, the faults and vices of our literature and philosophy, their too great fineness, effeminacy, and melancholy, are attributable to the enervated and sickly habits of the literary class. Better that the book should not be quite so good, and the bookmaker abler and better, and not himself often a ludicrous contrast to all that he has written.

But granting that for ends so sacred and dear, some relaxation must be had, I think, that if a man find in himself any strong bias to poetry, to art, to the contemplative life, drawing him to these things with a devotion incompatible with good husbandry, that man ought to reckon early with himself, and, respecting the compensations of the Universe, ought to ransom himself from the duties of economy, by a certain rigor and privation in his habits. For privileges so rare and grand, let him not stint to pay a great tax. Let him be a caenobite, a pauper, and if need be, celibate also. Let him learn to eat his meals standing, and to relish the taste of fair water and black bread. He may leave to others the costly conveniences of housekeeping, and large hospitality, and the possession of works of art. Let him feel that genius is a hospitality, and that he who can create works of art needs not collect them. He must live in a chamber, and postpone his self-indulgence, forewarned and forearmed against that frequent misfortune of men of genius, -- the taste for luxury. This is the tragedy of genius, -- attempting to drive along the ecliptic with one horse of the heavens and one horse of the earth, there is only discord and ruin and downfall to chariot and charioteer.

The duty that every man should assume his own vows, should call the institutions of society to account, and examine their fitness to him, gains in emphasis, if we look at our modes of living. Is our housekeeping sacred and honorable? Does it raise and inspire us, or does it cripple us instead? I ought to be armed by every part and function of my household, by all my social function, by my economy, by my feasting, by my voting, by my traffic. Yet I am almost no party to any of these things. Custom does it for me, gives me no power therefrom, and runs me in debt to boot. We spend our incomes for paint and paper, for a hundred trifles, I know not what, and not for the things of a man. Our expense is almost all for conformity. It is for cake that we run in debt; 't is not the intellect, not the heart, not beauty, not worship, that costs so much. Why needs any man be rich? Why must he have horses, fine garments, handsome apartments, access to public houses, and places of amusement? Only for want of thought. Give his mind a new image, and he flees into a solitary garden or garret to enjoy it, and is richer with that dream, than the fee of a county could make him. But we are first thoughtless, and then find that we are moneyless. We are first sensual, and then must be rich. We dare not trust our wit for making our house pleasant to our friend, and so we buy ice-creams. He is accustomed to carpets, and we have not sufficient character to put floor-cloths out of his mind whilst he stays in the house, and so we pile the floor with carpets. Let the house rather be a temple of the Furies of Lacedaemon, formidable and holy to all, which none but a Spartan may enter or so much as behold. As soon as there is faith, as soon as there is society, comfits and cushions will be left to slaves. Expense will be inventive and heroic. We shall eat hard and lie hard, we shall dwell like the ancient Romans in narrow tenements, whilst our public edifices, like theirs, will be worthy for their proportion of the landscape in which we set them, for conversation, for art, for music, for worship. We shall be rich to great purposes; poor only for selfish ones.

Now what help for these evils? How can the man who has learned but one art, procure all the conveniences of life honestly? Shall we say all we think? -- Perhaps with his own hands. Suppose he collects or makes them ill; -- yet he has learned their lesson. If he cannot do that. -- Then perhaps he can go without. Immense wisdom and riches are in that. It is better to go without, than to have them at too great a cost. Let us learn the meaning of economy. Economy is a high, humane office, a sacrament, when its aim is grand; when it is the prudence of simple tastes, when it is practised for freedom, or love, or devotion. Much of the economy which we see in houses, is of a base origin, and is best kept out of sight. Parched corn eaten to-day that I may have roast fowl to my dinner on Sunday, is a baseness; but parched corn and a house with one apartment, that I may be free of all perturbations, that I may be serene and docile to what the mind shall speak, and girt and road-ready for the lowest mission of knowledge or goodwill, is frugality for gods and heroes.

Can we not learn the lesson of self-help? Society is full of infirm people, who incessantly summon others to serve them. They contrive everywhere to exhaust for their single comfort the entire means and appliances of that luxury to which our invention has yet attained. Sofas, ottomans, stoves, wine, game-fowl, spices, perfumes, rides, the theatre, entertainments, -- all these they want, they need, and whatever can be suggested more than these, they crave also, as if it was the bread which should keep them from starving; and if they miss any one, they represent themselves as the most wronged and most wretched persons on earth. One must have been born and bred with them to know how to prepare a meal for their learned stomach. Meantime, they never bestir themselves to serve another person; not they! they have a great deal more to do for themselves than they can possibly perform, nor do they once perceive the cruel joke of their lives, but the more odious they grow, the sharper is the tone of their complaining and craving. Can anything be so elegant as to have few wants and to serve them one's self, so as to have somewhat left to give, instead of being always prompt to grab? It is more elegant to answer one's own needs, than to be richly served; inelegant perhaps it may look to-day, and to a few, but it is an elegance forever and to all.

I do not wish to be absurd and pedantic in reform. I do not wish to push my criticism on the state of things around me to that extravagant mark, that shall compel me to suicide, or to an absolute isolation from the advantages of civil society. If we suddenly plant our foot, and say, -- I will neither eat nor drink nor wear nor touch any food or fabric which I do not know to be innocent, or deal with any person whose whole manner of life is not clear and rational, we shall stand still. Whose is so? Not mine; not thine; not his. But I think we must clear ourselves each one by the interrogation, whether we have earned our bread to-day by the hearty contribution of our energies to the common benefit? and we must not cease to _tend_ to the correction of these flagrant wrongs, by laying one stone aright every day.

But the idea which now begins to agitate society has a wider scope than our daily employments, our households, and the institutions of property. We are to revise the whole of our social structure, the state, the school, religion, marriage, trade, science, and explore their foundations in our own nature; we are to see that the world not only fitted the former men, but fits us, and to clear ourselves of every usage which has not its roots in our own mind. What is a man born for but to be a Reformer, a Remaker of what man has made; a renouncer of lies; a restorer of truth and good, imitating that great Nature which embosoms us all, and which sleeps no moment on an old past, but every hour repairs herself, yielding us every morning a new day, and with every pulsation a new life? Let him renounce everything which is not true to him, and put all his practices back on their first thoughts, and do nothing for which he has not the whole world for his reason. If there are inconveniences, and what is called ruin in the way, because we have so enervated and maimed ourselves, yet it would be like dying of perfumes to sink in the effort to reattach the deeds of every day to the holy and mysterious recesses of life.

The power, which is at once spring and regulator in all efforts of reform, is the conviction that there is an infinite worthiness in man which will appear at the call of worth, and that all particular reforms are the removing of some impediment. Is it not the highest duty that man should be honored in us? I ought not to allow any man, because he has broad lands, to feel that he is rich in my presence. I ought to make him feel that I can do without his riches, that I cannot be bought, -- neither by comfort, neither by pride, -- and though I be utterly penniless, and receiving bread from him, that he is the poor man beside me. And if, at the same time, a woman or a child discovers a sentiment of piety, or a juster way of thinking than mine, I ought to confess it by my respect and obedience, though it go to alter my whole way of life.

The Americans have many virtues, but they have not Faith and Hope. I know no two words whose meaning is more lost sight of. We use these words as if they were as obsolete as Selah and Amen. And yet they have the broadest meaning, and the most cogent application to Boston in 1841. The Americans have no faith. They rely on the power of a dollar; they are deaf to a sentiment. They think you may talk the north wind down as easily as raise society; and no class more faithless than the scholars or intellectual men. Now if I talk with a sincere wise man, and my friend, with a poet, with a conscientious youth who is still under the dominion of his own wild thoughts, and not yet harnessed in the team of society to drag with us all in the ruts of custom, I see at once how paltry is all this generation of unbelievers, and what a house of cards their institutions are, and I see what one brave man, what one great thought executed might effect. I see that the reason of the distrust of the practical man in all theory, is his inability to perceive the means whereby we work. Look, he says, at the tools with which this world of yours is to be built. As we cannot make a planet, with atmosphere, rivers, and forests, by means of the best carpenters' or engineers' tools, with chemist's laboratory and smith's forge to boot, -- so neither can we ever construct that heavenly society you prate of, out of foolish, sick, selfish men and women, such as we know them to be. But the believer not only beholds his heaven to be possible, but already to begin to exist, -- not by the men or materials the statesman uses, but by men transfigured and raised above themselves by the power of principles. To principles something else is possible that transcends all the power of expedients.

Every great and commanding moment in the annals of the world is the triumph of some enthusiasm. The victories of the Arabs after Mahomet, who, in a few years, from a small and mean beginning, established a larger empire than that of Rome, is an example. They did they knew not what. The naked Derar, horsed on an idea, was found an overmatch for a troop of Roman cavalry. The women fought like men, and conquered the Roman men. They were miserably equipped, miserably fed. They were Temperance troops. There was neither brandy nor flesh needed to feed them. They conquered Asia, and Africa, and Spain, on barley. The Caliph Omar's walking stick struck more terror into those who saw it, than another man's sword. His diet was barley bread; his sauce was salt; and oftentimes by way of abstinence he ate his bread without salt. His drink was water. His palace was built of mud; and when he left Medina to go to the conquest of Jerusalem, he rode on a red camel, with a wooden platter hanging at his saddle, with a bottle of water and two sacks, one holding barley, and the other dried fruits.

But there will dawn ere long on our politics, on our modes of living, a nobler morning than that Arabian faith, in the sentiment of love. This is the one remedy for all ills, the panacea of nature. We must be lovers, and at once the impossible becomes possible. Our age and history, for these thousand years, has not been the history of kindness, but of selfishness. Our distrust is very expensive. The money we spend for courts and prisons is very ill laid out. We make, by distrust, the thief, and burglar, and incendiary, and by our court and jail we keep him so. An acceptance of the sentiment of love throughout Christendom for a season, would bring the felon and the outcast to our side in tears, with the devotion of his faculties to our service. See this wide society of laboring men and women. We allow ourselves to be served by them, we live apart from them, and meet them without a salute in the streets. We do not greet their talents, nor rejoice in their good fortune, nor foster their hopes, nor in the assembly of the people vote for what is dear to them. Thus we enact the part of the selfish noble and king from the foundation of the world. See, this tree always bears one fruit. In every household, the peace of a pair is poisoned by the malice, slyness, indolence, and alienation of domestics. Let any two matrons meet, and observe how soon their conversation turns on the troubles from their "_help_," as our phrase is. In every knot of laborers, the rich man does not feel himself among his friends, -- and at the polls he finds them arrayed in a mass in distinct opposition to him. We complain that the politics of masses of the people are controlled by designing men, and led in opposition to manifest justice and the common weal, and to their own interest. But the people do not wish to be represented or ruled by the ignorant and base. They only vote for these, because they were asked with the voice and semblance of kindness. They will not vote for them long. They inevitably prefer wit and probity. To use an Egyptian metaphor, it is not their will for any long time "to raise the nails of wild beasts, and to depress the heads of the sacred birds." Let our affection flow out to our fellows; it would operate in a day the greatest of all revolutions. It is better to work on institutions by the sun than by the wind. The state must consider the poor man, and all voices must speak for him. Every child that is born must have a just chance for his bread. Let the amelioration in our laws of property proceed from the concession of the rich, not from the grasping of the poor. Let us begin by habitual imparting. Let us understand that the equitable rule is, that no one should take more than his share, let him be ever so rich. Let me feel that I am to be a lover. I am to see to it that the world is the better for me, and to find my reward in the act. Love would put a new face on this weary old world in which we dwell as pagans and enemies too long, and it would warm the heart to see how fast the vain diplomacy of statesmen, the impotence of armies, and navies, and lines of defence, would be superseded by this unarmed child. Love will creep where it cannot go, will accomplish that by imperceptible methods, -- being its own lever, fulcrum, and power, -- which force could never achieve. Have you not seen in the woods, in a late autumn morning, a poor fungus or mushroom, -- a plant without any solidity, nay, that seemed nothing but a soft mush or jelly, -- by its constant, total, and inconceivably gentle pushing, manage to break its way up through the frosty ground, and actually to lift a hard crust on its head? It is the symbol of the power of kindness. The virtue of this principle in human society in application to great interests is obsolete and forgotten. Once or twice in history it has been tried in illustrious instances, with signal success. This great, overgrown, dead Christendom of ours still keeps alive at least the name of a lover of mankind. But one day all men will be lovers; and every calamity will be dissolved in the universal sunshine.

Will you suffer me to add one trait more to this portrait of man the reformer? The mediator between the spiritual and the actual world should have a great prospective prudence. An Arabian poet describes his hero by saying,

"Sunshine was he
In the winter day;
And in the midsummer
Coolness and shade."

He who would help himself and others, should not be a subject of irregular and interrupted impulses of virtue, but a continent, persisting, immovable person, -- such as we have seen a few scattered up and down in time for the blessing of the world; men who have in the gravity of their nature a quality which answers to the fly-wheel in a mill, which distributes the motion equably over all the wheels, and hinders it from falling unequally and suddenly in destructive shocks. It is better that joy should be spread over all the day in the form of strength, than that it should be concentrated into ecstasies, full of danger and followed by reactions. There is a sublime prudence, which is the very highest that we know of man, which, believing in a vast future, -- sure of more to come than is yet seen, -- postpones always the present hour to the whole life; postpones talent to genius, and special results to character. As the merchant gladly takes money from his income to add to his capital, so is the great man very willing to lose particular powers and talents, so that he gain in the elevation of his life. The opening of the spiritual senses disposes men ever to greater sacrifices, to leave their signal talents, their best means and skill of procuring a present success, their power and their fame, -- to cast all things behind, in the insatiable thirst for divine communications. A purer fame, a greater power rewards the sacrifice. It is the conversion of our harvest into seed. As the farmer casts into the ground the finest ears of his grain, the time will come when we too shall hold nothing back, but shall eagerly convert more than we now possess into means and powers, when we shall be willing to sow the sun and the moon for seeds.

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McKinsey Financial Crisis, Past and Present

Providing an analysis of previous recessions and depressions, McKinsey gives clarity to the economic situation we find ourselves in. The public discussion is beginning to recognize that this is both a financial crisis and a recession. Most would agree that this environment is more toxic then previous events.

Living through the economic decline of the early 1980's, the Canadian governments much loved National Energy Policy and the decline in oil prices to single digits caused Calgary to become pretty much a ghost town. We had sections of the papers classified ads dedicated to the mandatory foreclosure announcements. You could fire a cannon down the downtown streets and never hit anyone. And that was during lunch. 

McKinsey have identified the early 1980's recession as fairly severe. The Canadian situation was exacerbated by the discriminatory policies of the Liberal government against the Western Provinces. And the politics of the Saudi's and the U.S. creating a decline in pricing that eventually did bankrupt the Former Soviet Union. This recession was amongst the longest. The two depressions that occurred in the 20th Century, the great one, and the lost decade of the Japanese. 

The way that I see this downturn is very much through the lens of Professor Carlota Perez' long range economic analysis. Citing five previous "depressions" that occurred in predictable fashion, all of these events were significant in that they were the means of initiating fundamental change in the key economic drivers. My opinion is we are moving from the inefficiencies of the bureaucracy, to organizational business models that exploit the full value of the Information and Communication Technologies (ICT).

What we can learn from this McKinsey paper might be valuable, so lets dig in. We see two groups of industries that are suffering as a result of the downturn. Auto's and manufacturing appear to be significantly over built with a capacity overhang of monstrous size. How government policies can overcome this "cost" is difficult to see. The decline of the U.S. based manufacturers to mere shadows of their current selves is what is needed to effect the changes that are needed in the economy. How the political leaders deal with this is unknown, and potentially dangerous as the natural forces are attempted to be stopped. 

On the other side the American economy is the high tech engine of the world. Companies like Apple, Google and Intel are global leaders with cash balances of up to $30 billion. These are the new economy preparing to lift all boats and make society more prosperous and efficient. Other then higher taxes that will be assessed to pay for the auto and mortgage bailouts, how will these companies attain the value add to make up the difference from the auto companies. Most people would agree that reorganization of firms holds the possibility of leveraging the talent in these organizations. 

From a company standpoint, the critical issue is the impact such shocks and subsequent downturns can have on the availability of credit—and the impact of a credit shortage on the real economy and on consumer and corporate confidence. The downturn after the S&L crisis of the 1980s and ’90s, when bank write-offs equaled some 4 percent of GDP, lasted about two years. GDP ended up about 4 to 5 percent lower than it would have been given the pre-crisis trend line. After the bursting of Japan’s asset bubble, the country’s economy grew by less than half a percent a year in real terms for a decade, and GDP ended up around 18 percent lower than it would have given its pre-crisis trend line. We estimate that the present credit crisis will cut real GDP by around 3 to 7 percent from trend growth. If the US economy were to follow the same path it did in the more severe crises, the total lost GDP could be two to three times greater than that estimate. pp. 1 - 2

Up to a 21% decline in U.S. GDP is a serious hit. A hit that would have to be ranked in the depression category. What is unique about a depression is the length of time that the declines occur and the lost opportunities of the economy during these protracted periods. Glossing over the problem, as the U.S. monetary and fiscal policies are attempting, is the wrong way to make the time shorten. Focusing on the strengths, job retraining and letting the social system kick in for those effected is where they should be focusing their efforts in my opinion. You have Toyota, Honda and Ford that are going to make it in the long term, lets leave it to them to work out the problems. A better fiscal stimulus may be tax cuts that provide the consumer with additional cash to use in their own transitions.

But the fallout from the past century’s two worst crises did considerably more damage. In the countries hardest hit by the 1990s’ Asian financial crisis—Indonesia, Malaysia, the Philippines, South Korea, and Thailand—GDP shrank by an average of 8 percent in 1998 in local-currency terms. Since their currencies halved in value, on average, in US dollar terms the damage was catastrophic—bankrupting many companies and causing widespread social unrest. And during the Great Depression, from 1929 to 1933, 28 percent of real GDP was lost. p. 2

Organizational changes would reduce the impact of these declines and enable the economies to grow well beyond what the current bureaucracies have established as possible. Acceptance of the scope of the difficulties that we are in seems to be the major impediment to thinking constructively as to our collective future. The pain is here, lets not wallow in it.

Equity markets are the most visible and dramatic indicators as crises unfold. At the end of October 2008, the S&P 500 index had fallen by 46 percent from its peak a year before (October 9, 2007, to October 27, 2008). By late November 2008, the US equity market had given up almost all of its gains since the 2001–02 dot-com bust. Although nobody knows if the market has reached bottom, the fall so far isn’t unusual by historical standards. Japan’s Nikkei 225 fell by 48 percent from peak to trough (December 29, 1989, to October 1, 1990) during the banking crisis, though the market has subsequently fallen still further; at the end of October 2008, it retained less than 20 percent of the peak value reached in 1999. During the Asian financial crisis, the equity markets of Indonesia, South Korea, and Thailand fell by 65, 72, and 85 percent, respectively, in local-currency terms. In the United States, the S&P 500 index fell by 49 percent from March 24, 2000, to October 9, 2002, after the tech bubble burst. pp. 2 - 3

The Japanese stock market remains at 20% of what it was in December 29, 1989! Lets not go down that road, where people choose to ignore the problems they are in, the cost is too high. Now with the aging population of Japan becoming a significant issue, their inability to address the scope of their problems in the early 1990's threatens to remove their economy from the global system. All as a result of high real estate valuations.

Since the peak, housing prices have fallen by 18 percent, as measured by the Case–Shiller housing index, whose futures imply a further fall of 19 percent from the peak. Losses in the housing and mortgage markets, when realized, could considerably exceed those in the stock market as of early December 2008. p. 4

McKinsey provides sound analysis of how companies should approach this downturn. Here are some of their recommendations. 

What should companies do?

We do not yet know how the current crisis will evolve. The confidence of consumers, corporations, and investors—a key factor—cannot be forecast. Nor can government policy. Yet research shows that in past recessions, companies pursuing a purely defensive strategy fared less well than their more active counterparts. As the economy enters what will probably be a difficult downturn, companies should prepare to seize their opportunities. p. 5

And for oil and gas, they should turn to this community to begin the process of building the software necessary to define and support the innovative oil and gas producer. A software application that is based on using the Joint Operating Committee as the key organizational construct of the industry. One that aligns the Joint Operating Committees communication, legal, financial, cultural, and operational decision making frameworks with the bureaucracies sole purpose, compliance and governance. A software application that eliminates the bureaucracy and replaces it with the Compliance & Governance Modules Military Command & Control metaphor. With this alignment the conflict and contradictions between the JOC and the bureaucracy cease. The Military Command & Control Metaphor governance methods of the People, Ideas & Objects Draft Specification provides a sound vision of the possibilities of what this community could build and support in terms of a more innovative oil and gas producer. 

Please, join me here.

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McKinsey Leading through uncertainty

This article was highlighted in McKinsey's Global Institute. Although it is part of McKinsey's  "The Crisis: A new era for management" and would be included in our review of those 19 standout papers. This article is co-authored by Diana Farrell, Director of the Global Institute and one of my favorite authors. This document, of all the McKinsey documents, will stand as a critical part of any oil and gas workers toolbox. It is an absolute must read and one that is on target in terms of what we should be doing in these economic times. (Click on the title of this entry.)

These times are different. It is clear that this is different when we can point to the large number of events that have not occurred before. For example, when was the last time Chrysler shut down all of its plants in North America. Although for only 30 days, I would ask how do you restart a car company? Or, the long list of retail operations that soon will be shuttering stores with no 30 day deadline.

I want to simply highlight the following four quotations that relate specifically to this project for oil and gas, and ask you to please join me here to start building the software that is necessary for rebuilding the oil and gas industry.

Most companies acted immediately in the autumn of 2008 when credit markets locked up: they cut discretionary spending, slowed investment, managed cash flows aggressively, laid off employees, shored up financing sources, and built capital by cutting dividends, raising equity, and so forth. While prudent, these actions probably won’t produce the short-term earnings that analysts expect, at least for most companies. In fact, it’s time they abandoned the idea that they can reliably deliver predictable earnings. Quarterly performance is no longer the objective, which must now be to ensure the long-term survival and health of the enterprise.

Professor Carlota Perez says the only way that we can move to a higher performing economy is by changing the basis of the economy. We can't do that on a prospective basis, only by keeping the preceding ways, the bureaucracy, until the point to where it collapses upon itself.

More resilient

A crisis is a chance to break ingrained structures and behaviors that sap the productivity and effectiveness of many organizations. Such moves aren’t a short-term crisis response—they often take a year or more to pay dividends—but are valuable in any scenario and could help a company survive if hard times persist. Although employees may dislike this approach, most will understand why management aims to make the organization more effective.

McKinsey is the number one consulting firm in the world. It has been for many years and have an established pedigree that others should aspire to. This next quotation should be taken with that in mind and the opportunity you have to join People, Ideas & Objects .

This may, for example, be the time to destroy the vertical organizational structures, retrofitted with ad hoc and matrix overlays, that encumber companies large and small. Such structures can burden professionals with several competing bosses. Internecine battles and unclear decisions are common. Turf wars between product, sales, and geographic managers kill promising projects. Searches for information aren’t productive, and countless hours are wasted on pointless e-mails, telephone calls, and meetings.

There is a clear vision of how an oil and gas producer could be more effective using the Joint Operating Committee. That vision is reflected in the Draft Specification.

Experience shows that streamlining an organization to define roles and the way those who hold them collaborate can greatly improve its effectiveness and decision making.

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McKinsey IT Global Survey

McKinsey have published their third annual Information Technology Global Survey. This survey was taken during a time of economic stress, and as such, I feel it necessary to comment on the state of economic affairs as I see them. Yesterday we saw Federal Reserve Chairman Ben Bernanke essentially capitulate to the power of this economic decline. Moving the interest rates to 0% and stating he will do what he has to do to solve these problems, there is a tacit recognition of the scope of this depression.

I have been referring to this downturn as the mother of all depressions, and I think I would get a consensus on that. The only remedy to this is to eliminate the inefficiency within the economy. That means radical organizational changes supported by powerful new IT systems. As I state on occasions "SAP is the bureaucracy" and to change the organization requires first and foremost a change in the systems used by the firm. It is within this economic backdrop of this survey that I make these comments. The survey respondents are generally the ones that will be fairly quickly losing their jobs. Click on the title of this entry to view the survey results.

It may be considered optimal or ideal to have IT lead the organization in term of innovation and competitive advantage. A competitive advantage that would be attainable by a fundamentally different system like the Draft Specification of People, Ideas & Objects could provide.

CIOs and other senior executives agree that ideally these capabilities should, for example, promote innovation and better enable companies to seize new opportunities. Still, they continue to see a gulf between these aspirations and the value that IT currently delivers. p. 1

Existing demands of IT and performance requirements show that the pressure to just stay afloat becomes more difficult.

The global economic downturn complicates matters. Respondents cite continuing pressures to deliver on existing IT projects and services at a time when they expect spending to fall. So they are making trade-offs: reducing IT operating expenses so they can maintain high-priority new investments that support broader business goals, such as improved sales force or supply chain management. p. 1

I suspect these types of decisions are being made throughout the oil and gas firms highlighted in our piggy series. Failure, despite the belief that the government can save everyone, is not an option. It is what is needed for society to move forward.

I have to reiterate the value that McKinsey Consulting is providing here. They are consistently showing the right direction for firms to move too. For the past number of years (3 by my count) they have shown that they are concerned about the economic consequences and are actively moving their firm and clients to the new model they preach. This survey is no different. As I have said before, I have allocated a sizable budget for their consulting to this project when we begin. Precisely for comments such as this.

Unprepared for disruption

Nearly two-thirds of respondents say their organizations are at risk from information- and technology-based disruption. Ranking highest among disruptive forces are potential shifts in customer expectations for better products or differentiated services enabled by information- and technology-based capabilities. p. 2

To add insult to injury, it is the other C class executives that are looking at their own internal IT groups with what sounds like the greatest of disappointment.

IT’s value to the corporation

The survey found aspirations for IT are substantially unmet: respondents see a large gulf between their IT organization’s current priorities and what IT could contribute. p. 3

Makes me think that there may be a spot for People, Ideas & Objects yet! And McKinsey reflects a strong intent for businesses to improve in this area. However, based on my experience with the Canadian producers I have highlighted as the Piggies, they are only concerned with their retirement and ensure their activity level remains low enough not to strain themselves. The point that I am trying to make is that saying this is the "intent" may make it through their budget processes, but we know it is mostly, if not all, BS.

This year’s results show an area of notable improvement: the way IT strategy is developed. Fifty-nine percent say that their companies develop multi-year IT plans, up from the 52 percent response last year, and 56 percent say that their IT strategies include technology-driven business innovations, versus 42 percent last year. Still, two-thirds of executives say further improvements are possible by integrating business and IT strategy more closely. They favor a process where IT strategy and the “art of the possible” in technology influence the development of business strategy, closing the loop in strategy development (Exhibit 3). This joint development of strategy by business and IT would reduce risks of surprise disruptions and better involve IT in bolstering competitive advantage. p. 3

The remainder of the document discusses the budget allocations of these managers. This I perceive as an academic exercise since none of it will come about. The economy will be acting swiftly against those that are unable to bridge the gap from the old to the new. And the new begins here with People, Ideas & Objects and the Draft Specification. Please join me here.

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McKinsey's Innovation Lessons From the 1930's

In their series dealing with the current economic crisis. McKinsey have published a short but interesting article on innovation in the 1930's. They have subtitled the document.

History suggests that even the deepest downturns can create huge opportunities for companies with money and ideas.

As part of their "Crisis" series, this document can be downloaded from here. Highlighting the efforts of DuPont in April 1930 and how they discovered and developed Neoprene. With low commodity prices and abundant research talent, they were able to discover and conduct their research over the course of the dirty thirties. They also highlight the successes of Hewlett-Packard and Polaroid during these times.

Their conclusion is one that should be considered carefully. We now have a situation where the governments around the world are attempting to stop the natural process of renewal. Instead of looking forward to the benfits of hardware, software, physics, nano-technology, bio-tecnology, genetics and a variety of new and promissing opportunities. We are proping up carcasses like GM, Fanny, Freddy and a long list of poorly run firms that don't want to face the music.

The experience of the 1930's also illustrates a broader point. Although deep downturns are destructive, they can also have an upside. The depression-era economist Joseph Schumpeter emphasized the positive consequences of downturns: the destruction of underperforming companies, the release of capital from dying sectors to new industries, and the movement to high-quality, skilled workers toward strong employers. For companies with cash and ideas, history shows that downturns can provide enormous strategic opportunities.

In oil and gas we have a variety of challenges that need a new approach. The approach I have suggested is documented in the Draft Specification, please join me here.

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Cisco's John Chamber's on MIT video

Subtitled "Building the Next Generation Company: Innovation, Talent, Excellence."

And we are back once again. I have not solved all of my technical issues, but I should be able to post every business day.

Outside of these technical issues my biggest problem is that it has become obvious to most people that addressing the organizational structures of companies is needed. The economic difficulties we are experiencing are providing the opportune time for the future leaders to implement the changes in their industries. The sheer volume of analysis being conducted on this topic has grown exponentially. Not only has the quantity increased, but the quality of the ideas being generated has improved. Much of this thinking is directly applicable to the work that I suggest we undertake in the oil and gas industry.

This current video from MIT promises to provide some valuable input to those people that are interested in this project. I previously reviewed an MIT video of Cisco's Chambers a few years ago, and was very impressed with this man's communicativeness, if that is a word. He is a truly impressive and articulate presenter. So lets dig in.

Not willing to hedge his bets and mitigate the consequences of what he says. Chambers fires his first comments with this sweeping declaration. Show me a leader in oil and gas that has the gumption to say these types of things.

What is exciting is what has changed and at the same time what has not. When you look at the future of companies, I think we are going to see the most fundamental changes in business and government. Moving from command and control to truly collaboration and team work.

Noting the recession is definitely taking hold, Chambers states that this is the opportunity to make the necessary changes. At around 6 minutes he states the following 3 points as his economics 101 prescription for addressing the economic impacts on your firm. 

1. Understand the effect on your company. Was the problem the consequence of your own actions.
   
2. How long do you think the recession will last and how deeply will it affect your firm.
   
3. The first action that should be taken is to prepare for the upturn.
   

Chamber's states governments role in the economy will be expanded. Something that I have noted in the business model of People, Ideas & Objects. Governments, and particularly those that have oil and gas production as part of their economy, have a vested interest in making this software development project go forward. The second point relates to all industries. Governments need to support the software industry much in the same manner and mindset in building the "Eisenhower Interstate". Software is the future's infrastructure, without it the future will not be as efficient as it could. 

Chambers goes on to comment that creating a change mindset scares people. Providing a vision  helps people to understand and to support the changes that are necessary. The vision I see for the oil and gas industry, as reflected in the Draft Specification, provides an understanding of how, by using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer, it will provide the producer with the mindset and higher performance necessary of the future economy.

@ 12:30 Chambers talks specifically about business model innovation. Throughout this time he talks about the volume of productivity growth. That the Information and Communication Technologies would provide the ability for economies to exceed the expected productivity performance of most economists. From Chamber's perspective IT is not a cost, but an investment that provides real returns.

@ 16:20 Chambers recalls a discussion he had with Alan Greenspan of the Federal Reserve. Talking about the possibilities of heightened productivity from IT he notes that Greenspan stated "A new generation of innovation would be around the corner". Chambers I think has been one of the largest proponents of using IT with new business models and organizational changes. I only state this to square the circle of how these enhanced productivity volumes are achieved.

@ 18:28 Chambers notes that Cisco has moved from 1 or 2 major initiatives up to 26 initiatives in a single fiscal year. Reflecting the volume of work that is truly possible by innovative firms. Might I say that the oil and gas industry needs to up its performance in a manner similar to what Cisco has achieved. 

@ 29:00 Chambers begins to talk about the way that he works today. He blogs. And that is how he communicates. Wikis are proliferating through the organization. And the majority of his meetings are held virtually through Cisco's use of their own "telepresence" products. I had previously wrote about these products here. Chamber's reflects on the dramatic impact Telepresence has made on his travel schedule compared to three years ago. 

To participate in building the types of systems that are needed for a highly productive future in the oil and gas industry. We need to build the software that identifies and supports the Joint Operating Committee in the manner that the Draft Specification describes. We can begin that by readers joining this community by following these instructions.

Towards the end of the video Chambers begins to sell the Cisco Telepresence product line.  I am one that certainly has drank the technological kool aid and include the value of face to face virtual meetings as a critical part of this software development project. But there is a larger point that I would be missing if I did not state the value of face to face virtual meetings of the representatives of the different producers sitting at the virtual Joint Operating Committee. If, in addition, these people were supported by the kinds of business tools that are discussed in the Draft Specification, then I think we can see how the industry could expand the number of initiatives it undertakes and the society as a whole be able to depend on the energy industry to fuel their imaginations of what is possible. 

Please, join me here.

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Technical difficulties...

Have precluded me from posting. With the loss of my third and last computer, posting will be light.

McKinsey, Strategy in a structural break.

I can see this is going to be an all McKinsey month. McKinsey have undertaken a comprehensive revision of their website, and have now followed on with an increase in their sites content. This series appears to consist of 19 articles and I will be highlighting the pertinent ones in a series of blog posts this month. Our first document, as typical of McKinsey documents, is topical to the work that is being done in oil and gas, innovation, and People, Ideas & Objects. The subtitle or introduction begins within the context of our current economic situation;

During hard times, a structural break in the economy is an opportunity in disguise. To survive—and, eventually, to flourish—companies must learn to exploit it. p. 1

The world is quickly realizing the depth of the current economic difficulties. Whether we are in a deep recession or depression is the debate currently taking place. We certainly have much to be concerned about and will need to be mindful of the economic difficulties. We also have a variety of opportunities. If we look at this time as a clean slate, our opportunities are magnified substantially. Now is the time to ask, "what can we do", with corporate accountability, organizational performance, innovation and a brighter future being what is possible. An opportunity that we can call ours, if we take the opportunity. That is what this McKinsey article is about.

By strategy, I mean a cohesive response to a challenge. A real strategy is neither a document nor a forecast but rather an overall approach based on a diagnosis of a challenge. The most important element of a strategy is a coherent viewpoint about the forces at work, not a plan. p. 1

The author rightly criticizes the "strategy" term to describe anything that may be happening with the firm. In that context this quote puts the strategy much clearer in my opinion. If we took the times that we are in and formulated a "real" strategy; and approached this depression from the viewpoint of a diagnosis of a challenge. We begin to see the People, Ideas & Objects software development project in line with this thinking of now being a great opportunity. The results of which will be going to winners and losers in the oil and gas game.

A structural break.

As I have stated here before, and based on the writings of Professor Carlota Perez, we are in a "turning" based on the developments brought on by the Information and Communication Technologies (ICT). Why do we get in the car to sit in the long line ups to get to work. It's not necessary, yet we are required to do so by the bureaucratic management of most firms. Is this sustainable? Or should we approach this structural break as an opportunity to make the changes to the oil and gas industry. Eliminating the structured hierarchy and replacing it with the Joint Operating Committee is what the 600,000 words on this blog are about.

A corporate crisis is often a sign that the company’s business model has petered out—that the industry’s underlying structure has changed dramatically, so old ways of doing business no longer work. In the 1990s, for instance, IBM’s basic model of layering options and peripherals atop an integrated line of mainframe computers began to fail. Demand for computing was up, but IBM’s way of providing it was down. Likewise, newspapers are now in crisis as the Internet grabs their readers and ads. Demand for information and analysis is increasing, but traditional publishing vehicles have difficulty making money from it. pp. 2 - 3

I point to the fact that the production and reserves of the oil and gas companies are in steep decline. The transition from the banking mentality of managing 10% returns on oil and gas investments has failed. The new basis of the innovative oil and gas firms business model is science. Where the earth science and engineering disciplines are enabled to fully exploit the current understanding and move the science and understanding forward. We know that a structural break has affected the production profiles of the producers, but did not create the corporate crisis that McKinsey suggests. The management of the producer firms were enabled in their ability to report record profits from higher prices. Therefore the corporate crisis that is needed is not as a result of the production and reserves decline, sad as that may seem, but the temporary 12 - 18 month decline in energy prices that we are currently experiencing. As it turns out I am frankly surprised at the scope of the decline in energy prices. Since this software development project was not developing the traction necessary for the producers to act, maybe now the oil and gas investor, who has been affected the most, will.

Based on the prior quote, the business model of the oil and gas producer has failed and a corporate crisis is what is necessary to clean out the industry. Here's hoping that I may find work in the oil and gas industry once again.

The wrong way forward in a structural break during hard times is to try more of the same. The break and the hard times are sure indications that an old pattern has already been pushed to its limits and is destroying value. p. 5

Here, here as they say in politics. Most of the producers have lost the ability to generate the profits their management needed to reward themselves, and their managements motivation is in question. The firms are in a state of crisis and are having most of their projects scaled down to preserve cash, something they should have a bounty of. However, are cash poor in the majority outside the international super majors.

Consider an analogy. When oil is cheap and plentiful, we create a vast infrastructure that works well if oil remains cheap and plentiful. When it becomes expensive, we wish we had a different infrastructure. Similarly, when economic opportunities abound, we invest in a management infrastructure that harvests them very well. When the field of opportunities becomes less verdant, we must change our management infrastructure. A system that requires companies to spend at least $300,000 a year in wages, benefits, support personnel, and systems to enable one educated person to do his or her job could be unsustainable in a less luxuriant world. p. 7

Doing things differently.

Enough discussion of what is plainly obvious to most outside the rarefied air of management. What do we do about this crisis. The second major point of my thesis was that software has taken on a much more important role in defining and supporting organizations. That to change anything, must first be reflected in the software. Coining the phrase "SAP is the bureaucracy" shows this thinking to be valid, and at the same time shows what would be necessary to make any changes.

So during structural breaks in hard times, cutting costs isn’t enough. Things have to be done differently, and on two levels: reducing the complexity of corporate structures and transforming business models. At the corporate level, the first commandment is to simplify and simplify again. Since companies must become more modular and diverse, eliminate coordinating committees, review boards, and other mechanisms connecting businesses, products, or geographies. The aim of these cuts is to provide lean central and support services that don’t require business units to spend time and energy coordinating their activities. Break larger units into smaller ones to reveal cross-subsidies and to break political blockades. You may think that coordination costs will rise if you fragment the business, but you must do so to expose what ought to be streamlined. p. 7

By adopting the Joint Operating Committee (JOC) as the key organizational construct solves all of these objectives. Review of the Draft Specification shows the effect of simplifying the business to its JOC culture has the effect of providing the innovative oil and gas producer with the means to move to the science based business model.

But these changes require more. Software has been around for several generations in the oil and gas industry. None of it has fully satisfied the needs of the industry. Primarily because of the rapid changes that are reflected in the base business. What is needed is a software development capability to ensure that the innovative oil and gas producer can move and benefit from the many industry changes. A systems development that puts the users in the forefront of defining their needs. One that addresses the high failure rate of software development projects, where project and development risks play a significant part of those failures.

In ordinary hard times, the traditional moves are reducing fixed costs, scope, and variety. But in hard times accompanied by structural breaks, you must rethink the way you manage. Companies that survive and go on to prosper look beyond costs to the detailed structure of managerial work. Several new issues come to the forefront:

• How much extra work results from the way incentive and evaluation systems relentlessly pressure managers to look busy and outperform one another?
  
• Which information flows can you omit? Information that doesn’t inform value-creating decisions is a wasteful distraction.
  
• Which decisions and judgments can you standardize as policy rather than make in costly meetings and communications?
  
• How can you work with customers, suppliers, and the government to simplify their processes so that you can simplify yours?

Recessions are neither good for the economy nor morally uplifting. But since we are diving into a period of neck-snapping change, we had better start the process of reformation before it’s too late. p. 8

For oil and gas that means People, Ideas & Objects, please join me here.

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Information and Communication Technologies (ICT).

Change is over estimated in the short term, and underestimated in the long term, so the saying goes. Technology had a number of days of reckoning in the early part of this decade. A time when the elevators were projected to fail, for a day, and the creation of technologies that appeared to solve the source of all the worlds dog food problems. I was still working in management in the oil and gas industry, and had no compelling reason to join these hysterical technological projects. This software development project is not about the technology for technologies sake.

Today our economy is going through the necessary transition to enable society to move to higher performance metrics. Much of these economic changes will be focused around the elimination of the bureaucratic processes and replacing them with new and more innovative business models and organizations. This transition is driven by the inefficiency of the old ways in which to organize and is contrasted to what is possible in applications like People, Ideas & Objects. Structural organizational changes with today's Information Technology (IT) provide real value generating capabilities and efficiencies.

The economic news continues to surprise on the downside. It now appears that the economy is actually going to slow quite substantially, with many people uttering the D word. If there is a depression, and that is what is necessary to instill the changes in the industries, we are looking at a 5 year turn around. The necessary time to make the changes to the industries to enable the more efficient means to be built and become operational.

The stimulus that governments are now applying is a covert "Quantitative Easing" by the Federal Reserve. This policy, I think, has been put into place to eliminate the possibility of deflation coming into the picture. The Fed has pumped cash, straight from the printing press, into the economy in an unprecedented fashion. The best reading on what is happening is provided by Rebecca Wilder (not her real name.) Her blog post provides two graphs that show the money multiplier is collapsing, and the bank reserves are surging. The latter appears to me to be attempting to make up for the loss of economic activity due to the multiplier effect's decline.

Many people have already been affected by the market meltdown. Reliance on a good job, your pension, mutual funds, stocks and your home now seem to be the wrong strategy. The safe road now seems to have been the most risky alternative. What should someone do in order to deal with this situation. Hedge your bets. If the economy does complete the expected transitions it will be in a new form. One that optimizes the potential of ICT. Where systems like People, Ideas & Objects are built to enable the new economy to prosper. Like this project, none of these applications are built at this time. In many industries there is not even a comprehensive vision of what is possible in the future. I believe I have provided a strong and coherent vision of how the energy industry could operate in the future. And have led the charge to make the systems available to the marketplace at the soonest possible moment. I am unaware of any other alternative to turn too at this time.

For people to change requires that they be disrupted in this violent of a fashion. If we could all realize and act to make the transition seamless we would, but we can't. We must be disrupted to the point where the decision is made not to go to work, and what to do next. For that is the only means of comprehensive change that can be put in place. The reason people will stop going to work is because they know there is nothing there for them. Their next question is "what will I do now." And that is where this project comes into play. People, Ideas & Objects is the future for the oil and gas industry. A place where you will log into work as opposed to drive to the office. A place where the systems based on the vision of the Draft Specification provide the means and manner in which people can do their job in the industry.

These are the facts of the situation today. It would be better if we didn't have to go through these changes but that is not an option. The bureaucracies are unable to provide us with a sustainable way of life. Therefore we must move to build higher performance organizational structures. The upside is that these new ways of doing business will provide for substantially better standards of living then what we were accustomed to in the past.

So we can either hide from the difficulties and ignore that they are happening, or proactively make the transition as seamless as possible by accepting that this is and will happen. And govern yourself in a fashion to optimize the upsides. For oil and gas it is as simple as following the procedure necessary to join People, Ideas & Objects, and limiting the damages to your world. Please join me here.

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Bloomberg is reporting

A little off topic but the scope of the economic difficulties is coming into focus. Bloomberg is reporting the Fed and Treasury are prepared to provide unlimited financial resources to the market to offset the threat of deflation. If you have read the Preliminary Research Report that I wrote in May 2004 I expressed a concern that if left unchecked, the economy could slide into a deflationary period that would be particularly brutal. It would seem that the Fed is in agreement that this must be avoided and is willing to spend up to $7.4 trillion to eliminate the risk. 

Are we not pushing on a rope? Having the value of money erode in the market is one thing. Having the governments contribute to its further erosion by dropping interest rates and bailing out potentially failed organizations just seems wrong. People need higher interest rates in order to encourage savings. The more logical solution to this problem is to get people motivated to invest by giving them a decent return for the risk they are taking in their investments.

We can generally agree that the source of this problem was the low interest rates of the early part of this decade. (See my entry on mis-allocation of capital.) When capital provides little to no returns, with high risks associated with those returns, money is considered cheap. If money had a cost, would it not allocate financial resources to the projects with the highest return. When money is worth little investments have little to compete with. When the government guarantees every and all transactions, a sloppiness in the capital allocation process starts us down the road to moral hazard. 

I know this is contrary to current economic thinking but I have to ask are we only making this problem greater by further diluting the already sloppy capital allocation that has been carried out? It seems to me to be the case.

Our current policies of expansive money supply were created in the great depression. They are assumed that these are the means in which to have the economy return to a normal operating environment. But is this assumption, which is based on the lone event of the great depression interpreted incorrectly? Stuffing the banks full of cash does not make them want to loan it out. Handing money to consumers does not make them want to spend. What motivation is there to take a risk?

One unforeseen consequence of this over-stimulated economy is the demand for energy was obviously significantly overstated. The current price declines are a reflection of the influence of deflation in a market and the long term capital deflation appears to be right around the corner.  To make matters worse, the decline in reserves and production are only exacerbated by the energy industries long term capital projects being shelved. How many times have we seen these big projects stopped and never return. It will be a gutsy investor who stands up and says their building a new offshore drilling rig. Making our future production horizons even more constrained.

There are serious distortions being introduced into the marketplace for energy. I think the dynamics of the industry are accelerating at a pace that many of us, and certainly myself, are only now realizing how fast paced this environment is. One last link to Bloomberg shows them suing the Fed in order to determine if the Fed has made an unannounced change in their policies and are targeting inflation; to eliminate the deflation by flooding the market with "printed money." If we already have the recession, why doesn't the Fed invert the yield curve to force the market interest rates to rise. Throwing cash around in a panic is only making everyone nervous.

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The three Applications of the Preliminary Specification.

I thought that I would mention the design of the three applications that will house the modules of the Preliminary Specification. These three Applications have been determined to be the applications that the users, the producers and the Joint Operating Committee's will access. Essentially different views of the data, different views of the modules and different application processing contained within each Application. Each Application will contain different perspectives of the different modules as defined in the recently completed Draft Specification.

This work of identifying the Applications needs to be done in the Preliminary Specification and is a critical part of the People, Ideas & Objects deliverables. I have left the design and development of these modules to the greater community, as it is the community who will be best able to design these applications. The remaining work that needs to be done is too comprehensive for one individual to comprehend, understand and implement. Recall the budget, which has not been finalized, may contain the B, as in Billion dollars of development costs.

My role, as I have mentioned before, is to remove myself from any further design and development of the applications and modules. This is for my own sanity and the fact that I could really end up getting in the way with a number of my own preconceived notions that don't have any bearing on the performance of the innovative oil and gas producers. I have committed myself to ensuring that the resources and needs of the community are provided for the business end of these software developments.

I have a sense, and I have not done any research in this area, that the design and implementation of these applications will need to have significant research and development of new and unknown attributes. Just identifying what these attributes are will be a difficult and exciting area of research. I am calling for 100 individuals to participate in the Preliminary Specification. Researching the Applications will be a critical area where I suspect much value can be added. Please, join me here.

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The next 30 years.

I frequently watch the video's from FORA.tv for the surprisingly good content contained on that website. Think of it as the YouTube for the thinking. It is a compilation of videos from a 115 governments, institutions, universities, and leading publications. One can be lost in the sites content for weeks.

I was watching an Australian Broadcast Corporation (ABC) broadcast of Rupert Murdoch, Chairman and Chief Executive Officer of News Corporation. His Boyer Lecture entitled "A Golden Age of Freedom." During the broadcast he states in the next 30 years the world will welcome an additional 2 - 3 billion people joining the ranks of the middle class.

I am an optimist, although my recent rants on the economy may make it seem that I am pessimistic, I can assure you that there is nothing further from the truth. As I mentioned yesterday, the future holds new disciplines, new opportunities, new ways of organizing and living in a far better world with a much higher quality and quantity of life.

I leave you with the thought as to what the world will be like in 30 years. With a design of the People, Ideas & Objects Application and Modules fully operational in the marketplace for many decades, how the energy industry will have developed. The work that is being done in physics, nanotechnology, computer sciences, bio-chemistry, robotics, space and many other areas. Conducted on a global basis with the greatest possible number of people living a middle class lifestyle.

Our one impediment to making this happen is the ways and means of how we have achieved what we have to date. The bureaucracy or its more antiseptic name the structured hierarchy is the reason we are being held back. Change is violent and upsets too many things to be undertaken in a constructive manner. We know we should have moved away from the bureaucracies many years ago. The reason that we didn't is that bureaucracies still provided enough value as to not attract the necessary attention to there inefficiencies.

Now we have entered a time in our lives where everything happens so quickly. Our organizations, which can not accommodate any change, especially at today's pace of change are failing. Failure is what eventually happens, and we see that failure happening in business today. And we should welcome this change and move to the new forms of organization that will optimize the next 30 years. Please join me here in designing and developing these applications.

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McKinsey Power Curves

This article discusses the distribution of an industry dynamics. An interesting topic that I have not studied too much of in the past. I think, as the author of the article asks, there are implications here that may need to be discovered.

In the Preliminary Research Report I discussed the performance of then laggards against those of higher performance oil and gas companies. I used Revenue Per Employee as the manner in which to determine these firms performance. I then discussed the ability of laggards to catch up to higher performing firms; and noted the ability to do so was almost impossible due to a the following two factors.

• Influence of the firms asset performance based on its historical cost, infrastructure and industry distribution. Noting that putting lipstick on a pig makes no difference to the pig.

• Secondly the ability to catch the leaders is difficult. Today I would suggest that the Chinese have a long and very hard climb to match the growth and performance of the U.S. economy. And that is the same type of difficulty that firms face in each industry.

It is possibly ironic that the high performing firm that I used in the Preliminary Research Reports analysis was none other then our stellar pig, Canadian Natural Resources Ltd. How times have changed. And it is in that example I think I have found that the dynamic of change is not so much in the hands of those that want to challenge the established leadership, but in the hands of the leadership to make the big mistakes. CNRL has proven they have the capacity to ruin what was considered a leader in the Canadian oil and gas industry.

The McKinsey author closes the discussion with the following quotation.

Unlike the laws of physics, power curves aren’t immutable. But their ubiquity and consistency suggest that companies are generally competing not only against one another but also against an industry structure that becomes progressively more unequal. For most companies, this possibility makes power curves an important piece of the strategic context. Senior executives must understand them and respect their implications.

Clarifying the nature of how industries change. And this is where I see this situation becoming doubly dangerous for those that are active in any industry. Your ability to compete has little to do with the competition. Focusing on the competition will provide you with products that look and perform very similar to what GM produces. The need to pursue your own strategy of how you will optimize the performance of your assets should be in the forefront of your companies focus. The risks are associated with the mitigation of tangible and intangible threats to your firm, and the upside is through optimization of your opportunities. But is this optimization and mitigation able to provide the firm with any ability to sustain a higher performance "Power Curve"? This question also takes on needed and important discussion about the role of re-organizing the oil and gas producer on the basis of the Joint Operating Committee (JOC).

The first implication that I see in applying Power Curves is that doing nothing becomes one of the most difficult and dangerous strategies. We have all used the do nothing alternative in most of our decision matrices and that is not what I am talking about here. But doing nothing from the point of view of not taking the enhanced risk in this high paced change business environment.

It may have been prudent to sit back and wait until the competition in your industry to explode and you reap all the rewards. However, that is not what I am thinking of in this discussion. What I am thinking is the pace of change will render a status-quo strategy to the dust bin in the quickest time frame. A company must be actively attempting to move up the Power Curve in order to ensure they are progressing.

If we think about the times that we live in today. It is easy to see that we are heading into a time period where man will progress the furthest and fastest. In the next 50 years, biology, physics, chemistry, bio-chemistry, molecular biology, economics, robots, computer performance, software capability will fundamentally change society. Not one of these scientific categories is outside the realm of the innovative oil and gas producer.

How can a firm sit and watch what is historic in terms of discovery, almost every day. Clearly the ones that will win in the future will be those that are able to match the demanding changes that society will dictate. Look closely at the environmental movement and I think we begin to see the societal demands of our organizations accelerating. Can China continue to asphyxiate their population in the long term? Of course not, but they appear to do very little about the problem. Therefore how long will China be able to compete?

I take great pleasure in highlighting the failures of the companies highlighted in the piggy series of blog entries. Considering the scope of the discussion in this entry so far, it is easy to see how the greed and satisfaction of oneself has become the prime focus of companies today. Is this sustainable? I'm not sure, either way. Should we wait and see if today is the time in which we should have acted? Of course not. You don't wait until you can determine if someone is going to get themselves out of a burning building. You do everything possible to get them out. And like Treasury Secretary Paulson's failed TARP program, without trying, you'll never know if it worked or not. This is a key discovery, just as if the TARP program would have worked beyond everyone's expectations.

These are the dynamics that we face in the business world today. I suggest we critically analyze the performance of the oil and gas industry based on these metrics. I fail to see how the structured hierarchy and their bureaucratically identifying and supporting relatives, SAP and Oracle, can be expected to exist in this future environment. Please join me here.

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Two groups who need People, Ideas & Objects.

AP is reporting that the large and small producers in the oil and gas industry are experiencing some systemic difficulties. The large producers are able to generate large cash flow, and indeed have large bank balances. However, recent declining and negative reserve trends are now causing their production to decline. These accelerating decline curves are a direct reflection on their ability to find and produce more oil and gas.

On the other end of the spectrum the small producer is challenged by the inability to generate or raise any cash to begin to address their growing needs. This of course is as a result of their small asset base and the current low oil and gas prices. On the positive side, reserves are able to be increased at will. The reverse of the situation of the larger strata of the industry. To me this is not news, but a reflection on the way things have operated in the industry for many decades. The scope and severity of the problem comes down to the large producers declining production profiles.

Another issue that the entire industry faces in the short term is the size of the asset write downs caused by the today's lower prices. Based on the prices of the commodities it is fair to assume that producers were able to capitalize 100% of their costs associated with exploration and production since 2004. These costs are now subject to the auditors testing of value, based on the reserves. Potentially we may see the industry reflect large losses on their write downs to fair value.

Over the past 20 years the small producer has struggled to keep the doors open. Just as many small enterprises in other industries experience. Testing the risk profiles of small producers would result in the conclusion they are at stratospheric levels. Leading to the skill and courage of the investors and management, just to survive. Small producers have the inability to provide any returns for their investors for many years. The simple act of building a producer has to consider the many millions of dollars needed to increase the production profile. Many of these millions go to the simple act of keeping the lights on. The overhead of the firms is notorious for getting in the way of the investors expectation of receiving some value from the firm. Granted their will always be the capital gains that the investor could make over the life of building the firm. But their capital gains are not that spectacular and they should expect and receive more of the value they provide.

I have always marveled at the discussions that are made around the companies reserve reports. Reports on the field activities that have no concept or consideration that those operations have to support the administrative and management of the firm. In a public company this discussion takes on a much larger concern as the overhead costs of a public firm push the administrative costs well beyond what is possible for the management of the firm from an engineering and earth science point of view. The Private Equity movement that began in the last decade is symptomatic of the huge compliance and governance costs that a small public producer has to offset before there is anything left for anyone else. Please review the Compliance & Governance module of the Draft Specification for further information in how the compliance and governance is handled.

How is it that People, Ideas & Objects can help in this area? From the perspective of a large producer I see the problem as an issue of focus. The firm needs to simplify their strategy to something that will make money for the shareholders. This blanket strategy may not be appropriate for all of the properties or Joint Operating Committee's (JOC's) they have an interest in. (I attribute this as the source of the firms lack of "focus.") To say that there is conflicting strategies of the producers representing the JOC is obvious, and one of the sources of how problems get resolved is through identifying and resolving these contradictions and conflicts.

One of the advantages of moving to the People, Ideas & Objects system is that the JOC is able to set the strategy irrespective of the individual producers "global" strategy. Enabling each and every JOC to be optimized for their best operating and performance strategies and tactics. Providing the much needed focus that the large producers can not find. This strategy optimization in the JOC is a direct benefit of aligning the legal, financial, operational decision making, cultural and communication frameworks with each of the producers compliance and governance frameworks.

The banks, investors and money markets may have an interest in the producer or the JOC itself. Securitization of the individual interests in oil and gas will be necessary to fully optimize the innovative stance and increasing reserves of the industry.

Therefore the mix of producers in the JOC will help to mitigate the producers size issues for the entire industry. The large producer can partner with the smaller producers to balance out the needs of the property. Recall that the Partnership Accounting module in the People, Ideas & Objects system is based on the contributions of the individual firms represented. If a firm has a specialty in a certain regional geography, it can then agree with the partnership that the costs of those specialties goes towards satisfying some of the commitment from the company to secure their interest. In other words. The small and large producers are able to earn their interest in the property through their contribution of capital, expertise and / or land position on an all in valuation basis. If a geologist were to prove their value in the marketplace by finding commercial volumes of reserves. Then their ability to secure elements of the interests in the producing assets he / she is directly involved in creating.

The last point of the previous paragraph violates the first order of all oil and gas managements oath of allegiance. (I'm trying to be funny.)  Recognizing Intellectual Property (IP) is the exact opposite of the situation that exists in the energy industry today. Particularly the large firms do not want anyone to hold any form of IP as it conflicts with their needs to find people to employ and is (incorrectly) believed to be a leakage of value from their organization.

This is the 21st Century. We have the manner of all economics being re-aligned on the basis of new and more effective organizational structures. Those that believe in the bureaucracy, of any industry, are effectively being cut down to nothing in this market. The current economic climate is the same situation that affected the Former Soviet Union in 1989. The methods of organization could no longer sustain the demands of the people and failure was the result. Our system of organization has reached its limits of growth based on the bureaucracies inefficient efficiencies.

So the sooner we say good bye and good riddance, the sooner we can achieve the multiples of our current standard of living. As Jonathon Schwartz at Sun Microsystems says, you have to stop to change direction. These points are addressed in the Resource Marketplace and Research & Capabilities modules. If we expect to deny people the rights they earn in thinking through the big problems of how we can solve the oil and gas industries problems, then we are eliminating ourselves from the entire economic equation of the future. Our choice, and those that don't want the People to hold the trademarks, patents and copyrights should research which way is the best for the oil and gas industry to continue. We're going this way.

This issue is also addressed in the People, Ideas & Objects system. The competitive advantage of a producer is their physical producing assets, land base and scientific and engineering capabilities and capacities. Ownership of the capabilities and capacities, (the current situation) I don't think provides the industry with the value they think they attain. Building huge, mutually exclusive capabilities in each and every producer has increased the level of redundancy in the industry to a ridiculous level. Note also the large producers effectiveness of using these capabilities and capacities in finding and producing oil and gas. People, Ideas & Objects is the better way.

The producer who researches, develops and manufacturers their own drill bits is at a distinct disadvantage to the other producers who have manufacturers providing drill bits based on a collective need across all producers. I don't see too much difference in this example from what a firm is doing today with their geological talent. The alternative is hiring from a pool of highly qualified and talented scientists for application to a specific issue in one JOC. This has advantages that are directly beneficial to the future oil and gas producer. Once the geologist has completed their work, there may be no more work from that JOC in that area for his specialty again. He will have to keep thinking of how better to get the oil or gas out of the ground, (his job) which will form the basis of his new, and far more valuable to him, IP. Why employ him for 35 years and promise a retirement benefit that Wall Street will only take away from him.

The most effective change that the People, Ideas & Objects system provides the industry is an alignment to the cultural basis of the business. The JOC is the business, and the business is the JOC. Recognizing these facts in the IT that identifies and supports the JOC is a necessary realignment of the industries interests. A realignment that will fuel the innovation and further development of the critical sciences that are underlying the business of oil and gas.

With respect to the large and small producers that I started in this post. The alignment removes the conflict that the industry has with the development and ownership of Intellectual Property. It enables the large producer to use their cash flow in a manner that is more consistent with the needs of their JOC's producing properties. And the small producer has the ability to sell more of the talent and capability that is a necessary part of the industry makeup to financiers and investors. Both sides appear to me to be winners.

From the investor point of view, the fact that the systems will be supported through the levying of a fee on the basis of $ / BOE / year means that the larger producers will be paying the largest part of the freight in terms of the People, Ideas & Objects software development costs. Producers that are small and have no production would be use the system for free and have the Community of Independent Service Providers, that are a key part of the People, Ideas & Objects community, available to help mitigate the large associated costs of running a start up oil and gas concern. Please see the Compliance & Governance module for further clarification of how this is implemented in the system. And recall, that ideally the investor is the one representing the ownership interest of his / her share at the virtual JOC table.

Now is the time for these ways and means of operating be adopted. What we are witnessing is economic history. Producers MUST become more efficient and begin the process of rebuilding the industry from a more efficient and effective means of organization. To say the industry is collapsing is best reflected in Canadian Natural Resources Ltd impending demise. Please join me here.

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