Thursday, November 08, 2007

The McKinsey Quarterly, Harnessing the power of informal employee networks.

McKinsey has published a new article about the power of networks under their "Strategic Organization" functional group. Recall Metcalfe's law states the power, or value, of a telecommunication's network is proportional to the square of the number of users of the system. Although I don't think that the McKinsey authors were thinking in terms of Metcalfe's law, I think it is relevant. The pertinence of the law applies to the number of people as much as it does to Ethernet connections. In this article McKinsey states that informal networks are flourishing in corporate America. This is an extension of "human nature, including mutual self-interest, leads people to share ideas and work together even when no one requires them to do so." Music to my ears and something that I suspected would begin to happen to corporations.

Although this article addresses only internal networks, in oil and gas particularly, these informal networks affect the communications between companies. Recall the discussion about the stickiness of information and how information flowed through a hierarchy much slower then through the industry itself. These are the informal networks that have been existence for as long as people were employed in corporations, what's different now is they are much larger in terms of participation and volume. The Information Technologies are making these networks the most effective way in which to get things done. I see this as the failure of the hierarchy and its second cousin the bureaucracy. The path of least resistance is going to be used by people whenever there is pressure to perform. And as McKinsey notes about companies, and particularly large companies, there are tangible benefits.

Most large corporations have dozens if not hundreds of informal networks, which go by the name of peer groups, communities of practice, or functional councils -- or have no title at all. These networks organize and reorganize themselves and extend their reach via cell phones, Blackberries, community Web sites, and other accessories of the digital age. As networks widen and deepen, they can mobilize talent and knowledge across the enterprise. They also help to explain why some intangible - rich companies, such as ExxonMobil and GE, have increased in scale and scope and boast superior performance.
I can assure my readers that the ideas expressed in this blog have been resisted by the corporations. The corporations are unwilling to address these points and have systemically refused to sponsor or develop any of these initiatives. Just outside of their purview is the growing network of readers to this blog that see the long term solutions to their problems, and the network continues to grow. Sadly the bureaucracies will not participate until it is too late.
So it's unfortunate, at a time when the ability to create value increasingly depends on the ideas and intangibles of talented workers, that corporate leaders don't do far more to harness the power of informal networks. Valuable as they are, these ad-hoc communities clearly have shortcomings: they can increase complexity and confusion, and since they typically fly under management's radar, they elude control.
And in oil and gas it doesn't need to be this way. Companies are a critical part of the community that is being built here. The ability to manage your business can be enhanced by getting behind these informal networks and enabling them with software such as I am discussing in this blog. By doing so, they would be able to harness the power of these networks and eliminate the down side risks associated with them. Downside risks that are detrimental to the firm and increasing in terms of scope and scale.

To me the most disappointing aspect of reading this article is that the Joint Operating Committee is the cultural way of the industry. Its inherent in everything that it does and yet, for purposes of the hierarchy and its compliance focused ERP system vendor, most and if not all aspects are ignored. Which leads to me to re-iterate the proposed Military Command and Control that is fundamental part of the Compliance and Governance module. In terms of organizational structures the hierarchy has had a good run for the past 100 years. However its time is up. One organizational structure that has been successful for many thousands of years and one that is proven to be successful at least 50% of the time (counting both winners and losers) is the Military Command structure. Why not use the Military Command and Control structure for these informal networks?

So there we have it, the people within organizations seek to form informal networks as the path of least resistance. And oil and gas assets are best managed through Joint Operating Committees. For the first time I think I begin to understand why management dis-likes the ideas I write about.

Technorati Tags: , , , ,

Monday, November 05, 2007

Matthew Simmons on Peak Oil.

Matthew Simmons has written about the difficulties of the energy industry. In the early years his ideas were jeered by the industry, and as a result, he sharpened his pencil and double-checked his facts. Today I see him as being the foremost authority on the peak oil situation. Simmons presentation "Gauging the Risks of Peak Oil; will we face the limits to growth?" has been published on his website. I highly recommend downloading the slides and review the situation that he is talking about. His archives provide excellent resource material to the scope and scale of the peak oil issue.

Two questions that bring the immediacy of the problem we face in peak oil are asked on p. 37

  • How ample are winter inventories? p. 37
  • How fast can stocks drop before we breach minimum operating levels? p. 37
Suggesting that this winter may be the time where the inventories of crude and gasoline are dangerously close to a critical point where they are inadequate to meet consumers demand. This type of event, Simmons suggests, may start a "run on the bank" type of scenario where consumers will top up their tanks, and lead to the point where the distribution network is permanently damaged and unable to recover.

Simmons also makes the point that the makeup of the industries physical assets are in advanced states of age. Requiring an increase in the pace of asset replacement. With pipeline failures and refinery fires requiring more active budget and time requirements then in the past. This leads him to comment that something has to be done about the declining numbers of talent in the industry. I think we have to stop building individual silos of capability to "x" level and begin to think how it is we can expand the overall industry talent pool. I have suggested here, a pooling of industry resources in a market and firm definition that has each participant in the Joint Operating Committee's contributing available resources to the property. These pooled human resources adopting a military styled command and control governance model. This eliminates the redundancy of each producer having the capabilities on hand to complete the work that may be required, and relying on the market for those needs.

Needing these items is one thing, organizing where and how is another. If we approach this problem with a $ first attitude, we'll be revisiting the same, or even more dire consequences in 2 years from now. The point of this blog and its associated proposed software development is to establish the organizational means for the energy industry to mitigate peak oil and undertake these tasks that Simmons so effectively communicates.

As an optimist I find these challenges stimulating. As with all large challenges, human nature will surprise us with the solutions. I wrote recently about the 1700's and how Ludwig von Mises noted that the industrial revolution was the solution to population explosion. I think peak oil and its associated issues will challenge us to move to a higher level of civilization. And here, Simmon's reflects the sense of urgency that we begin this process.
It behooves all of us to take the risk of Peak Oil seriously, clamor for better energy transparency and take part in solving the 21st centuries greatest threat. p. 52
Technorati Tags: , , , ,

Friday, November 02, 2007

And so it continues.

Total Petroleum is in the news again regarding the probabilities the world might be able to produce 100m b/d. Recall I wrote about Total's revision to its future production increases were down 20% to 4%. And how that 1% increase was miraculously beyond the reach of what the company could attain. Today the CEO Christophe de Margerie was commenting on the International Energy Agency's report that expects 103m b/d in 2030. De Margerie states the possibility is an;

...“optimistic” scenario - meaning output was unlikely to reach that level. By implication the IEA’s ‘reference’ or business-as-usual scenario, in which output is forecast to soar to 116 mb/d in 2030, is even more far-fetched.
As CEO of one of the largest oil producers this is refreshing and candid honesty. The CEO goes on further to describe why he believes the world will not attain those production levels.
...that oil production was unlikely ever to reach that level not because of policy intervention, but due to a combination of geopolitics and geology.
and
De Margerie said that the quality of oilfields now being exploited was worsening, and that this would restrict the rate at which oil could be produced. “Definitely we have been - all of us - too optimistic about the geology, not in terms of reserves, but in terms of how to develop those reserves, how much time it takes, how much realistically do you need.” There had also been a false assumption that North Sea-style recovery factors could be achieved everywhere, said de Margerie: “Not true; it doesn’t work”.
and
Then came his own Rumsfeldian flourish: “But the fact that you don’t have the answer gives you the answer – ie. 100 [mb/d] is difficult because in the 100 you have already additional production in Iraq, you have additional production in Venezuela, you have additional production in Nigeria, you have additional production everywhere, and today we know those developments are not under way.”
An explicit and clear set of comments that reflect on the dire nature of the energy situation. The honesty is welcomed and is joined this week with two other notable comments. Sadad al Huseini, former head of exploration and production at Saudi Aramco says that up to 300 billion barrels of oil reserves of the worlds remaining 1,200 billion barrels is not there. Something that Matthew Simmons has been saying for many years, and Daniel Yergin has flatly denied on many occasions.

Lastly in an interview with James Smith, Chairman of Shell UK on Sky News. Smith made a statement that shows the way in which the energy problem may be solved.
In answering the question of activities in oil and gas being more expensive from Jeff Randall, James Smith says "so technology, partnerships and a resiliant balance sheet are going to be very important for the future"
Those that are interested are welcome to review this blogs archives and see how I think technology and partnerships (The Joint Operating Committee) can be employed innovatively in oil and gas.

Technorati Tags: , , ,

Thursday, November 01, 2007

Ralph Raico, The Life and Work of Ludwig von Mises.

Mises Video Podcast series. Ralph Raico on video in a 07/31/2005 Lecture at the von Mises Institute.

Professor Ludwig von Mises is more famous for his student Professor Frederick von Hayek then for his own ideas. Mises controversial ideas forced him to lead a low profile, with a decided lack of academic support for those ideas. Mises is considered one element of the foundation of what is known as the Austrian Economics, which includes Professor Joseph Schumpeter and Hayek. As is noted in the video Hayek was the more temperamental, much more moderate, in expression to Mises more outspoken ways. Being of the Libertarian mindset his views and thinking were generally not very welcome in the cozy, left leaning academic world. In his later years he was able to secure a non-paid position with New York University. To say the least Mises was underrated and misunderstood to a large extent. His thinking may best be compared to Ayn Rand's objectivism, and I have heard on many occasions that Mises was deliberately passed over for the Nobel Prize in economics. And it was not until Mises death in 1973 that Hayek was even considered for the Nobel, of which he was ultimately granted in 1974.

Today Ludwig von Mises ideas are receiving the respect and understanding his work deserved. As Hayek's ideas became mainstream in the 1980's and the foundation of most economics today, the influence of Mises and his ideas are receiving a more objective focus. At around 20:00 minutes into the presentation, Raico states;

Back in the early 1700's there were slums, people were poor, people died, every possible plague. Mises says you cannot understand the industrial revolution without understanding the western world was undergoing an un-precedented population explosion. For example, England in 1750 had a population of about 6 million; by 1850 the population was 24 million. The question was how would these new tens and tens of millions of people survive? Mises said the industrial revolution was the answer to the population explosion. That's how they survived, by society becoming immensely more productive.
Or to put in today's terms, the Information Technology revolution needs a problem to solve. Revolutions don't occur on their own, they are driven by the need to resolve some major issue the world faces. I think the problem that needs to be solved today is the continued support of the population, and peak oil. With 6.7 billion people and peak oil being the two constraints to our future prosperity, how will these billions of people survive in a declining energy reality?

The man on the street has thought that some great technology like dylithium crystals, or hydrogen would provide the answer to these problems. Expecting technology to solve the problem is right, but which technology? Could the "Information Technology revolution" be the answer? What can Information Technology do for the oil and gas industry? Dig through the archives of this blog to find some of the ways in which things could be done more efficiently. To start, think about the masses of people that are getting into their cars at the designated hour and driving to an office, and just how much energy we could be saving. It is the challenges that define the human condition. Just as the world was challenged with population explosion, the solution was automation of labor to increase the quality of life of the larger populations. As we face the large population and peak oil challenges, Information Technology will solve the problems of today.

Technorati Tags: , ,

Monday, October 29, 2007

It's the user, stupid.


Not to call anyone stupid, but I am sure the majority of the SAP and Oracle users will join me in commented on their interface. Professor Nicholas Carr of "Does IT Matter?" fame? blogged about the state of the user interface on enterprise software systems.

Recall that my primary focus is to build an environment where the users are involved in every aspect of this systems design. I don't want to re-create the SAP methodology under a new name; I want to build useful systems. I have commented before how I am certain that SAP does not understand the pipeline, drilling, completion, equipping, gas cost allowance, royalty or capital markets involved in the oil and gas producer. I therefore expect nothing useful to come out of SAP, other then of course their claim to fame the bureaucracy.

Now Carr notes that Khoi Vinh of the New York Times wrote on his blog some interesting analysis as to why enterprise class application interfaces are so bad.

This is partly because enterprise software rarely gets critiqued the way even a US$30 piece of shareware will. It doesn’t benefit from the rigor of a wide and varied base of users, many of whom will freely offer merciless feedback, goading and demanding it to be better with each new release.
and
Shielded away from the bright scrutiny of the consumer marketplace and beholden only to a relatively small coterie of information technology managers who are concerned primarily with stability, security and the continual justification of their jobs and staffs, enterprise software answers to few actual users. Given that hothouse environment, it’s only natural that the result is often very strange.
To me the reason for the poor response of the user community towards SAP and Oracle is due to the fact that they have put the cart before the horse. Building the application and then expecting the users is as backwards as I can imagine. The user has to come first in both time committed and priority. I think the term is commonly referred to as "eating our own dog food".

Outside of the security specification, no code will be developed unless their is a user community demanding the solution be built based on their specification, design, analysis etc. Software has been built the wrong way too many times and it's too important to be left in the hands of a "small coterie of information technology managers".

Photo courtesy: www.subtraction.com

Technorati Tags: , ,

Wednesday, October 24, 2007

Innovative Management: A conversation with Gary Hamel and Lowell Bryan.

The McKinsey Quarterly has issued a new article of interest to this blog and its community of users. Subtitled "Forward-looking executives must respond to the growing need for a new managerial model." Words that tweak my attention, and when I read the first paragraph, I know fundamentally that we are on the right track in terms of where the oil and gas industry needs to move.

"Sometime over the next decade" warns renowned strategy guru Gary Hamel in his new book, "The Future of Management," your company will be challenged to change in a way for which it has no precedent." What's even more worrisome, he argues, is that decades of orthodox management decision-making practices, organizational designs, and approaches to employee relations provide no real hope that companies will be able to avoid faltering and suffering painful restructurings.
and
McKinsey partners Lowell Bryan and Claudia Joyce, in their recently published book, "Mobilizing Minds", arrive at a similar conclusion from a slightly different perspective. They find that the 20th century model of designing and managing companies, which emphasized hierarchy and the importance of labor and capital inputs, not only lags behind the need for companies today to emphasize collaboration and wealth creation by talented employees but also actually generates unnecessary complexity that works at cross-purposes the those critical goals.
To argue their points one would be required to articulate the advantages of the hierarchy and its alter ego, the bureaucracy. Since I have been critical of this form of organizational structure, I won't be capable of arguing the point. It is clear to the majority of the world that the hierarchy was established in the 20th century and did indeed die towards the end of that century. Its existence today is an impediment to society moving forward in this new era of technology, peak oil, globalization and a wide assortment of other changes. I would challenge anyone who would argue the need for the hierarchy for the next 20 or even 5 years. The sooner we realize this, the more quickly we can adapt to the challenges that face us.

In oil and gas I have discovered fierce resistance to the ideas that I write about here. The majority of this resistance originates from the official hierarchy. Yet it is a point of contradiction that I can also appeal to the individual within the hierarchy, and its most vocal supporter, and have them willingly participate in this project. I am not asking anyone to fall on their sword and sacrifice their careers and pensions. Only to participate freely in these developments so as to ensure that their individual transition between the two organizational constructs is as profitable and as smooth for the people involved. This point does not need to be marketed or sold the people are willing. As we become more organized we will be able to continue with the construction of the software as the user moves closer and closer to their gold watch. The people that I need to appeal to are the oil and gas investor. They need to be identified so that they can see these developments are the best area and means in which they should operate their oil and gas assets. Here the McKinsey article begins the associated thought process starting with the executive.
Forward-looking executives will respond to this looming challenge, these authors conclude, by bringing the same energy to innovative management that they now bring to innovative products and services.
Why? Because they will be told to by their Board of Directors, or directly from their shareholders. When is the question that I would ask? The associated costs of this application are in the range of a few hundred million dollars. The producers today will need to see the writing on the wall before they are able to fund this development. And that is why I spend none of my time attempting to win these executives over. Its a fools game and I have a willing and able critical resource, the users, who are not confused as to where their future lies. The group that I must appeal to is the disgruntled shareholder. How much of the asset securitization debacle currently brewing in the hosing market is symptomatic of the disconnect between ownership and management. How much of this issue is associated with the shareholder being the fundamental key to the hierarchy's success? And where does the investor turn in order to mitigate these risks?
The opportunity is substantial. Against the backdrop of the digital age's dramatic technological change, ongoing globalization, and the declining predictability of strategic-planning models, only new approaches to managing employees and organizing talent to maximize wealth creation will provide companies with a durable competitive advantage. It won't be easy. As companies discard decades of management orthodoxy, they will have to balance revolutionary thinking with practical experimentation to feel their way to new, innovative management models.
In response to the first interview question "What is the opportunity both of you have identified and how did you spot it?" Gary Hamel responds;
For almost 20 years I've tried to help large companies innovate. And despite a lot of successes along the way, I've often felt as if I were trying to teach a dog to walk on his hind legs. Sure, if you get the right people in the room, create the right incentives, and eliminate the distractions, you can spur a lot of innovation. But the moment you turn your back, the dog is on all fours again because it has quadrupled DNA, not biped DNA.
So over the years, it's become increasingly clear to me that organizations do not have innovation DNA. They don't have adaptability DNA. This realization inevitably led me back to a fundamental question: what problems was management invented to solve, anyway?
When you read the history of management and of early pioneers like Frederick Taylor, you realize that management was designed to solve a very specific problem -- how to do things with perfect replicability, at ever-increasing scale and steadily increasing efficiency.
Now there's a new set of challenges on the horizon. How do you build organizations that are as nimble as change itself? How do you mobilize and monetize the imagination of every employee every day? How do you create organizations that are highly engaging places to work in? And these challenges simply can't be met without reinventing our 100-year-old management model.
Bingo, Lowell Bryan responds to the same question;
I arrived at the same point from a slightly different perspective. McKinsey asked me about 12 years ago to try to understand the impact of technology and globalization on our clients. We concluded that these forces were creating a fundamental discontinuity. Or to put it differently, that technology and globalization were creating a set of opportunities that didn't exist before.
We observed that companies were struggling to take advantage of the opportunities created by digitization and globalization because their organizations were not designed for this new world.
Responding to the question "Are the thinking-intensive industries driving what Gary is talking about?" Lowell Bryan responds;
New organizational models are needed in all industries because all companies engage in thinking-intensive work. The traditional, hierarchically based 20th century model is not effective at organizing the thinking-intensive work of self-directed people who need to make subjective judgements based upon their own special knowledge. ... That's where the value is today. The winners will be those that enable their thinking-intensive employees to create more profits by putting their collective mind power to better use.
The remainder of the interview focuses on the people and the collective brain power of an organization to solve problems. This is the objective in building this software, and I will leave it to the interested readers to download the McKinsey article by clicking on the title of this entry. (Registration required) It is important to remember this software will be built to explicitly to support the Joint Operating Committee, the natural form of organization in the industry. With the information technologies that are available today, the ability to achieve what is discussed in this McKinsey interview is possible for the energy industry. I think we should get started today.

Technorati Tags: , , , ,

Thursday, October 18, 2007

Prophet of Innovation: Joseph Schumpeter and Creative Destruction.


Click on the title of this entry to be taken to the Google Book Search page for this book. I was introduced to the writings of Professor Richard N. Langlois, our key research author, through his being awarded the Schumpeter Prize in 2004, for his paper The Dynamics of Industrial Capitalism. I'll admit I have not read the Prophet of Innovation, yet, and even if I had read it, that would not have been the point of the blog entry. Harvard Professor Thomas McCraw has participated in two PodCasts in the past few months. His promotion of his book brings up a number of very interesting points about the times that we live in today. It will be worthwhile for the readers of this blog to put this book on their reading list, Professor McCraw is a Pulitzer Prize Winner and therefore, easy to recommend.

The August 9, 2007 PodCast is on "Bloomberg on the Economy" with Tom Keene. He opens the PodCast with the comment that the Prophet of Innovation is the "Publishing event of 2007, the definitive one volume of Schumpeter." The opening discussion reviews Schumpeter's life and some of the key term's of which he became famous for. Like Creative Destruction is what entrepreneurs do. Will and the "emotion of our will" in making change. How the charismatic leader is someone who is bound and determined to change things.

"Successful innovation is more a matter of will then of intellect." The shear effort necessary to carry out the tasks that face our energy industry are possibly the largest issues we have faced to date. Our way of life will be challenged by the reduction in energy production. I also think this is the point in time where mankind will stand up and prove that we can, through force of the will that Schumpeter comments on, make the necessary changes and prosper in a future that few can imagine today. This new world is right around the corner and promises to bring democratic freedoms to their highest levels attainable.
Professor McCraw's book shows how barriers that confront entrepreneurs have to be overcome, and hence this obsession or will has to be maintained throughout the adventure. Many new entrepreneur's, on the scale of Henry Ford will be needed to solve these problems. The entrepreneur's character and disposition are some of the things that Schumpeter identified and valued and McCraw has documented in his book.

The second podcast of Professor McCraw's is on October 8, 2007 on EconTalk with Professor Russ Roberts. Schumpeter was believed to be the one who first noted the role and value of vision in business. To see the future in a vision of what, where and how the changes could improve the efficiency and effectiveness of the business is a key attribute of the entrepreneur. But there is something more. Professor's Roberts and McCraw discuss the important difference between innovation and invention. Leonardo DaVinci never built an airplane. He invented it, or was at least the first to think about it. He never took the next step that is critical of the entrepreneur. "Doing the thing" is what McCraw describes that Schumpeter focused on as the key difference between innovation and inventions definitions.

The other key attribute noted by Schumpeter was the concept of the business cycle's influence in the innovative marketplace. Business fail and that is the natural way of economic progress. There was a time when people thought that businesses would never fail, however today we know that not to be the case. The difference is the founding entrepreneur is consumed by a feverish perseverance that drives the business further then the competitors. Succession of the business, whether through the family or size, can not capture this fever and therefore makes the business susceptible to failure.

Who will be the leaders and entrepreneur's in this new era in energy. We do not know. I am certainly doing all that I can to ensure the most efficient organizational structure is supported by a highly capable software development team so that those entrepreneur's can operate as efficiently as possible.

Technorati Tags: , , ,

MIT Energy Council on MIT Video

I am extremely disappointed with the direction of MIT's Energy Council. MIT President Susan Hockfield made a video update; you can view the video here. I originally wrote about what I thought about their focus and direction here. It now appears they have lost that focus and hence are lost on the real issues. Talking more about the concern for CO2 and alternative energies are blind, dark bunny trails for those that don't understand the real point. Coal, oil and gas make up the majority of the sources of energy and will continue to do so. The ability to meet market demand for energy is not sustainable and a world class leadership from the likes of MIT would have made the journey a little easier. It is now clear, in this almost incoherent one and a half hour presentation, nothing of material value is being done on energy issues at MIT.

Technorati Tags: , , ,

Wednesday, October 17, 2007

The Nobel Prize in Economics

This past Monday the Nobel Prize in Economics was awarded to;

Professor Leonid Hurwicz

Professor Eric S. Maskin

Professor Roger B. Myerson

The title of this entry will take you to the two minute summary of "Mechanism Design" on nobelprize.org, clicking on the Professor's name will take you to a brief telephone interview where the Laureate describes their area of research. The prize was awarded for their work in "Mechanism Design", an area of research that is related to game theory and one that assumes the Nash Equilibrium. (Professor John Nash, 1994 Nobel Laureate.) Mechanism Design involves the researching, building and testing of rules and frameworks to ensure an equitable or fair distribution of economic externalities.

The best example of the theory is described in Alex Tabarrok's Reason Online article about two kids and a pie. The problem is how do you distribute the pie fairly so that both of the kids are satisfied with the outcome. A simple example of Mechanism Design implements the rule that the first kid cuts the pie and the second kid chooses his piece first. This process ensures that the cut is as equitable as possible. Mechanism Design is involved in establishing the ways and means of distributing resources.

The best source of information on the Nobel Prize laureates has been "Bloomburg's On the Economy podcast with Tom Keene". You can subscribe to the podcast on iTunes here, I highly recommend it. The next best is an article by Pete Boettke in yesterday's Wall Street Journal and is well summarized on his blog The Austrian Economists.

Here are Boettke opening paragraphs:

Yesterday Leonid Hurwicz, Eric Maskin and Roger Myerson won the Nobel Prize in Economic Science for their pioneering work in the field of "mechanism design." Strangely, some have used this occasion to disparage free-market economics. But the truth is the deserving recipients owe a direct debt to free-market thinkers who came before them.

Mechanism design is an area of economic research that focuses on how institutional structures can be manipulated by changing the rules of the game in order to produce socially optimal results. The best intentions for the public good will go astray if the institutional arrangements are not consistent with the self-interest of decision makers.

Finally I want to highlight two podcasts on Bloomberg. Professor Paul Samuelson's comments on the new Nobel Prize Laureates. Samuelson won the Nobel in 1970 and is 92 years old, the efficiency of his comments reflect his wisdom and skill in discussing economics in easy to understand terms. The second podcast of very high interest is of Professor Thomas Schelling who won the Nobel in 2005 for "enhancing our understanding of conflict and cooperation through game-theory analysis". Author of one of my favorite books "The Strategy of Conflict" Schelling's lectures are the most profound and stimulating that I am aware of.

So in terms of this research that we are doing here, using the Joint Operating Committee as the key organizational construct of the industry, we will need to open a new vein of research in "Mechanism Design" for the development of this software.

Technorati Tags: , ,

Tuesday, October 16, 2007

ASPO USA Conference

This week Houston is hosting the Association for the Study of Peak Oil & Gas - USA's (ASPO - USA) conference. Appropriately the conference is sub-titled "Energy, the First Challenge of the 21st Century". This conference may be the key turning point in the discussion of peak oil. Where talk turns to the actions needed to mitigate Peak Oil. Unfortunately I will not be there, but if I were, I would hope I could assert that one of the necessary actions would be to design and begin building the software for the industry operations.

The hierarchy is not an organizational structure that has been designed or built for the 21st Century. My question would be, what type of organization is necessary to address these problems? If we expect to approach this issue with any type of constructive speed or innovativeness we must first design that organization and build the software that supports it. The reality today is that software needs to be built first, or alternatively, choose manual systems. This organizational paradox is resolved when the software exists to support the transactions and processes of the innovative oil and gas producer.

Are we fully aware of the extent and level of dependence our actions are dictated by the IT we use? If I were to approach the "First Challenge of the 21 Century", I would start by designing the software. The organizational structure I recommend the industry use is the industry standard Joint Operating Committee (JOC). It is the legal, financial, cultural and operational decision making framework of the industry. All of the tacit knowledge of the industries operations is codified in that organizational construct. If we augment the Joint Operating Committee with today's Information Technologies, collaborative systems and a dedicated software development team, the JOC can align its frameworks with the Compliance & Governance frameworks of the environments we do business in. A system built to facilitate innovation and enable speed, everywhere and always in the earth sciences and engineering disciplines. Join me here and lets take action on our First Challenge of the 21st Century.

Technorati Tags: , , ,

Thursday, September 27, 2007

Internet Scale Identity, Collaboration, and Higher Education

Click on the title of this entry to be taken to Google Video for this presentation. First off a stern warning, the topic is a difficult one to discuss and the presenters do not do a very good job at it.

Firstly Bob and Ken do not adequately describe who they are or where they are from. The Internet 2 association consists of the majority of the university and other organizations, like Google, dedicated to "Providing both leading edge network capabilities and unique partnership opportunities that together facilitate the development, deployment and use of revolutionary Internet Technologies." Bob and Ken work in the "Internet 2 mid-ware initiative". Their presentation is about identity and its importance in collaboration and determining the validity of the party you are dealing with. Extending this to the type of collaborative interactions that will eventually be held in this application, and currently being specified in the People, Ideas & Objects Security Module, how are you assured that what is represented online is factual? There needs to be a method in which people can verify their identity and carry that with them through the day to day interactions discussed here in this application. The Federated Identity is described as follows.

Federated Identity

  • Enterprises exchanging assertions about users.
    • Often identity based but can provide scale and preserve privacy through the use of attributes.
    • Real time exchanges of standardized attribute / value pairs.
  • Basis for trusting the exchanged assertions via common policies, legal agreements, contracts, laws, etc.
  • Federations offer a flexible and largely scalable privacy preserving identity management infrastructure.
As a user of this system it will occasionally be necessary to find a welder in the area that you have production. How do you engage and ensure that the welder has the correct certification for operating in H2S environments. Conceivably the ticket that was issued to the welder for H2S operations would be available from the granting agency. The welder's "Federated Identity" would have the certificate issuer represented in the welder's Identity and the certified issuer would have the right to revoke it if for some reason the welder no longer qualified. This certification is assured at the point of initial contact with the welder. If the Federated Identity were for an individual, a company or a Joint Operating Committee (JOC) one could easily assure that the conduct of online interactions were assured to be valid. The inability to authenticate would preclude the user, company or JOC from conducting any further online transactions.

This style of interaction is currently being done in manual systems. Based primarily on past history, the user will call the welder up that finished the last job of his and not much more is done. And there is not much more that would happen in this virtual environment that I am talking about here. What is different is that a level of automation that eliminates much of the time wasting processing that is done in the manual style of systems. If the Federated Identity has enough terms and conditions that are necessary for the firm to hire that welder, they should be able to complete the majority of the contract prior to the issuance of the purchase order, which of course would also be the next step in this automated process.

These types of systems are being developed now not only for Internet2 but also for participating firms such as Google in their Google Apps for Education. Since we use Google Apps for People, Ideas & Objects, this type of Federated Identity is being built in the Security Module Specification that I am working on. The interactions are also an element of People, Ideas & Objects Compliance & Governance Module specification noted here. With the effective pooling of the participating producers human resources, requiring the Military Command and Control Style of organizations, these identity based interactions will be able to take on a dynamic matching of skills and function. One other area in which the Federated Identity satisfies is on the need to know basis. Even though all participants are from different companies their is no unnecessary leakage of information that would not have been pre-authorized to any other participant, individual or JOC.

The authors noted an Apache open source software "Shib 2.0" is capable of these types of Federated Identity and Shib 2.0 has just moved into beta. Much of the Federated Identity's ability to do these is contained within the "Technical aspects of Federations".
  • Federating Protocol
  • Enterprise signing keys
  • Meta-data Management
  • IdP discovery service
  • Enterprise Identity management practices.
Accreditation and certification are needed, and also difficult to achieve. The most difficult aspect is what is referred to as "Many to many user centric identity". The presenters were wise to point out the two methods, "multilateral" and "bilateral" means of achieving accreditation and certification. By using multilateral accreditation you achieve the Many to Many user centric identity without having to accredit every transaction, query or specification as bi-lateral, or one to one, certification requires. The presenters noting "Commonly manage which identities and which attributes can use the capabilities of the collaboration tools." And "Can offer delegation, privacy management, maybe even diagnostics."

To view some of the areas in which Federated Identity is currently operating see InCommon and the Internet 2 wiki.

Technorati Tags: , , ,

Wednesday, September 26, 2007

Jeffrey Immelt on MIT Video

Jeffrey Immelt is the current Chairman of General Electric. His video presentation is at the MIT Energy Conference. This is a very good video and I would encourage anyone to watch it for the unique perspective and insight that Immelt has. Click on the title for the url to the video.

Speaking about the difficulties in the energy field, Immelt noted that "market signals don't fit the time horizons", and I have to agree that is certainly the case. The three-months time frame that the capital markets operate within is not enough time for the energy industry to do anything. And the decades long lead times for satisfying the demand for energy are two areas where this disconnect happens. With such long lead times necessary to achieve anything in oil and gas, the markets always seem at odds.

He also spoke of the "notion that energy is free". This notion that he speaks of is, I think, is the same concept that makes people expect they have the right to energy. I hope that we can continue to experience these rights and entitlements; however, I think that our future holds occasional energy outages and increased costs.

Immelt noted from his personal experience in traveling to India that demand for energy from China and India would not stop growing. In satisfying the needs for energy he states, "This is the time that technology and innovation can have a value". He felt that coal, natural gas and oil were going to be as important as they ever have been. And noted his turbines where operating at 65% efficiency, and indicated that reducing consumption was an area where much innovation and savings would occur.

He finished his presentation with two of what he calls "Immelts".

If you want to do something, you have to do something.
and
You want it bad, you get it bad.

Technorati Tags: , , , ,

Tuesday, September 25, 2007

BP announces reorganization.

Things are not as rosy as the $80.00 oil prices would make it appear. The new CEO of BP Tony Hayward is on record as stating that a re-organization is required. He wants to reduce the number of reporting levels from 11 down to around 7, and intends to do so on the basis of the need to manage its "dreadful" performance. Staff cuts were not expressly stated however Hayward noted "There is massive duplication and lack of clarity of who does what".

Recall BP's recent operational concerns have included a fire at a Texas refinery and pipeline leaks in Alaska. Financial performance appears to be following the operational difficulties and BP's stock was affected today by the comments of its CEO. It would appear to me that the organizations has not only duplications as it's problem, but some areas where no one is watching. Cutting the bureaucracy will most probably prove to be the wrong direction in terms of the safety of its employees, contractors and public in general.

A change in the organization requires a change in the software. This is a fact of life that we live with today, but many of the largest corporations consider that software is just a cost of doing business. Its not, it is the life-blood of the organization, and rolling in another version of SAP is the safest approach to career security. Any organizational changes not directly mirrored by similar changes in the software will lead a company to continue on in the same futile vein as BP has.

There is another important point that I want to highlight here, and that is the role of the user in making sure that the software is what is required. What does SAP know and understand about pipelines and miscible floods? I think the BP situation, with all the failures and problems, is symptomatic of too many organizational changes that were not planned, developed and implemented from a software point of view. The "duplication and lack of clarity" and "operational failures" are the two extremes of the same problem; the software is not functioning, as it should. And the software is not functioning because the user was never asked, involved, consulted or expected to define the requirements of the systems they need and want to do their job.

The hierarchies' life expired in the 20th century. Approaching this problem with the same tools of the 1970's and 1980's appears wrong to me, and certainly not the solution to the BP problem. Have we exceeded the collective imagination of the CEO's and managers of our allegedly greatest companies? What does Hayward and those involved with BP think will occur as a result of the compression of 4 management levels?

If the firm is unable to deal with the operation today, what does that spell for the future? The industry will need to perform at a higher level very soon, and in the near future it will only become more difficult. Contrast today's headlines with what we should be learning from these organizations. We don't hear the news that the industry is moving forward with greater technical achievements and major discoveries, only news that reflects they are stuck in a time and place where nothing positive ever seems to occur.

Technorati Tags: , , ,

Monday, September 24, 2007

Modularity, Transactions, and the Boundaries of Firms: A Synthesis


Professor Carliss Y. Baldwin of Harvard University has published a new working paper. The title "Modularity, Transactions, and the Boundaries of Firms: A Synthesis" (available here) provides an excellent opportunity for me to review these topics. I intend to use Professor Baldwin's synthesis as a summary of the work that we have done in reviewing Professor Langlois working papers. I had also reviewed a prior working paper of Professor Baldwins, located here.

In the past I have been able to specify a modular specification, defined roles of both the Joint Operating Committee, the corporation and a method of how compliance and governance (Military Command & Control Structure) is achieved. I trust that reviewing the article by Professor Baldwin will enable me to build upon and re-publish these specifications with the changes learned through the review.

This first table designates the area of primary and secondary responsibility. The boundaries of the firm and market can be discerned through this table, the "Market" is for all intents and purposes the Joint Operating Committee (JOC).

ConstructMarketFirm
Joint Operating CommitteePs
Military Styled Command and Control (Governance)sP
Transaction CostssP
Production CostsPs
InnovationPs
Routine, compliance and accountabilitysP
ResearchsP
Development (the D in R&D)Ps
Financial FrameworkPs
Legal FrameworkPs
Cultural FrameworkPs
Operational Decision Making FrameworkPs

P = Primary
s = secondary


A summary of our current module specification.

  • Access Control and Collaboration
    • Security specification
    • Google Apps for People, Ideas & Objects
  • Partnership Accounting Module
  • Petroleum Lease Marketplace
  • Resource Marketplace
  • Financial Resource Marketplace
  • Compliance & Governance Module
  • Research and Capabilities Module
  • Knowledge and Learning Module

A module summary with some detail can be found here.

Technorati Tags: , , ,

Sunday, September 23, 2007

A user vision.

This next week I want to continue to discuss what a successful software application needs in terms of its user involvement. Without extensive user involvement you end up with applications like SAP. This next week, I hope to explain a lot of what, where, why, who, when and how a user will work in the development of this software application. I also want to appeal to the people that want to do something about the current slow pace of recognition of this looming Peak Oil crisis. Those people that know we have to change, but also know that change has to be planned, and software built before we make any changes to the organization. If we ignore the fact that software defines the organization, any changes not supported in the software will render us to use manual systems.

I will start this week with a summary of the overall user vision of this application that will be built here at People, Ideas & Objects. With that in mind lets begin by stating some of the ways that I see that work may soon be carried out in the oil and gas industry.

...Mandatory attendance at the office for working hours has quietly faded into the background with not much management friction, or heavy pushing from those that have benefited from the elimination of long commutes. Anytime there is a meeting, they appear to be sporadic events that just seem to happen, and most of them being virtual. Face to face meetings almost never happen at the office but at a restaurant or Starbucks. The times where an office is required is usually for large groups using conference and meeting rooms. The downside of this is that work may happen at any time of the day, but most of it easily schedule-able within your calendar.
On-line use of the systems developed by People Ideas & Objects helps to collaborate with all of the people that are gainfully employed in the industry and have access through the system. The management, administration and commercial areas of the industry are managed through the applications interface. Years ago you may have been doing production accounting related work which required you to report the production from one facility. Now most of that work has been automated and your job has evolved to where your specialization requires that you interact with any and all producers / owners with production from the sandstone formations of the early Cretaceous period, your teams specialty. Your last "job" was in production accounting doing administrative work and your current role has 20% of those elements but on a much larger scale and volume of data. The engineering and systems related elements of your work make it unique and diverse, depending heavily on your background, education and training. Oddly enough the math and statistics courses you took are the skills that are most heavily relied upon during the day.

Working mostly in the U.S. and Western Canada, your contacts are mostly virtual and you frequently collaborate with your clients, the partners / investor in the energy assets, and the members of your team. Your primary responsibility is the validity of the systems algorithms used within the People, Ideas & Objects systems for the facilities in your specialty. Ensuring they are consistent with the agreements requirements for production, revenue and cost allocation. You are joined by many of your teammates who work with you to ensure the processes you are responsible for are operating correctly. Your team consists of yourself, an engineer, and a software developer, and you have reviewed a proposed methodology of production allocation based on the co-mingling of production from the Cardium zone. A proposal from another investor group that needs to process their production through a facility your investors own. This has been contentious with the work attempting to strike an agreement for the methodology of the production distribution.
Your work largely consists of a number of processes that validate much of the automated processes of reporting for the facilities. Data and information that you work with mostly consists of a variety of graphs, charts and statistics that summarize and highlight the areas of concern and / or opportunity. Your toolbox also consists of many forms of rich media where audio and video presentations and documentations are used to discern the desire of the clients, and enable your team to learn about the new and innovative ways that the facilities are changing. Your report to your clients regarding the new production from the outside group will consist of a summary of the historical production history and net income. And, what could be expected from the facility on a go forward basis if there were no changes. These pro-forma reports are compared against a number of scenarios that the new investor group has expressed interest in, and deemed acceptable. These different scenarios have been used to calculate the differences from the most recent reserves information. It is your recommendation to the ownership group that hired you that the economic externalities have predominately fallen in their favor and they should proceed with alternate B. Adoption of the teams' proposal is made and the new production begins to be processed. You and your team work to have the system amended to reflect the new changes, and your processes updated to reflect the new agreement. You then move on to your next assignment where your team has been asked to evaluate the effectiveness of a CO2 capture and injection scheme for another ownership group.

The key points I wanted to highlight is the lack of fixed office locations, the hyper-specialization of a team's work, and the time of day in which the work was done. How the rich media would be used to communicate concepts quicker and more effectively then with text, and the statistical and graphical representation of data was necessary to eliminate the overwhelming volumes of data. Also how the team was comprised of cross-functional teammates with their own specific skill set. And lastly how they moved from different ownership groups based on their specialization of certain categories of hydrocarbon bearing zones.

I will try to add more to this vision in this next week, but I think that most people would generally agree that it is plausible that these types of activities would take the industry to the next level of performance. Those of us that know the bureaucracies are "sleep walking" through this looming crisis can see the value in developing this software. This next week I will take the opportunity to consolidate the discussion of modules, transactions and boundaries of the firm, and specify exactly what I foresee a user will define what will be done in this development. Lastly, I want this week to be the beginning of an appeal to the community of like-minded thinkers at the Oil Drum, Association for the Study of Peak Oil and the Energy Bulletin.

Technorati Tags: , ,

Wednesday, September 19, 2007

Where is the user?

SAP has announced a new product direction today. Offering SaaS (Software as a Service) functionality to small and mid-sized businesses of all industries. See here and here. The ability to service most industries with the same solution would be a tough sell for me. I am surprised that they would have tried such a strategy. The other problem is that SAP has been in development of this product for the past 3 years, what users were used to determine the functionality and requirements? I am not aware of any in the energy industry. And dare I ask what vision was used to unify the users behind one strategy. The answer to that question may be in the title of SAP's offering "Business ByDesign", which indicates to me they have designed this solution in their research labs!

The software service is targeted against other services such as NetSuite, and SalesForce.com. Each of which is offering a smaller component of the functionality pie then SAP. SAP provides the CRM and ERP functionality, as does Netsuite, but Netsuite has been available for 7 years and in the mind of Larry Ellison for the past 10 years. Reviewing NetSuite's targeted offering, it's audience appears to be currently using Quicken and Simply Accounting. SAP is expecting that some of their installed base of R/3 users will move to the "Business ByDesign" offering. Reflecting to me that they are positioning the product more in the mid to high end of their target audience.

I recently wrote about the business model of the traditional software company. And how the ability to deal with the constraints of code and customers eventually becomes such a problem that few enhancements are ever done to the code base. I therefore applaud SAP for at least attempting to break away from those constraints. It is a difficult prospect to restart your business from scratch in such a fashion. The redevelopment of SAP's SaaS solution is recognition of that flawed and outdated traditional model of software development.

Although I think that SAP did a smart thing in making the change to "Business ByDesign", not including the users could be fatal to the offering. It is the lack of users that tells me that SAP may have prepared the competitive offering with the wrong focus. Selling the same code base to thousands of customers as SAP has done in the past, makes it clear what the competitive offering is, the software code itself. Now SAP have shifted to a service and appear to me to be still looking to the software as the key competitive offering. I would therefore suggest they have misread the reasons for moving to SaaS. The competitive offering should be on the basis of the hosting of the application for the user base, and most importantly adding to the offering through enhancements demanded and driven by the users. Supporting hardware and software were not their forte but now needs to be. How will they host this environment within the corporation. Do they realize the business model has changed so fundamentally? The lack of user involvement would reflect to me that they have lost sight of the service offering. Secondly the software development capability becomes one of, and possibly the most important competitive offering. You can have the best developers in the world but they may not understand the user community and the ability to communicate may become a critical component that is missing in the "Business ByDesign" offering. Once the software is built there is no opportunity to build a user community.

People, Ideas and Objects is building its user community the hard way. Brick by brick and stick by stick the most important element of this development will be the user's knowledge and ability to communicate their desires and needs to the software development team. It is also inherent in the understanding of this project that the continuous development and enhancements are what the users need to do their work. In a manner very similar to how Google continues to develop applications that meet certain needs, with the overall vision of organizing the worlds information. What Larry Page and Sergey Brin have been able to build at Google has many parallels to what I foresee the user community wanting in this development.

If you share my vision of building great software, focused on the Joint Operating Committee, and built for the user, please email me and lets get started.

Technorati Tags: , , , ,

Monday, September 17, 2007

Peak Oil's turning point?

A variety of news and information that makes the Peak Oil issue somewhat more real then yesterday. First up is Shell's former Chairman Lord Oxburgh declares the following points. Lord Oxburgh says the industry "has it's head in the sand" and warned:

We may be sleepwalking into a problem which is actually going to be very serious and it may be too late to do anything about it by the time we are fully aware.
and
And once you see oil prices in excess of $100 or $150 a barrel the alternatives simply become more attractive on price grounds if on no others.
The Association for the Study of Peak Oil published some comprehensive analysis on the US oil import data. Of the many countries that export oil to the US, what will be sustainable for the long term? This analysis answers that question and the following two graphs reflect this analysis.














and

















Our friends at the Energy Bulletin have noted such luminaries as Lee Raymond, formerly of Exxon Mobil and the National Petroleum Council and former Energy Secretary James R. Schlesinger quietly reflecting on probabilities and possibilities of Peak Oil. Another excellent resource highlighted by Energy Bulletin is the report from the Department of Energy report "Peaking of World Oil Production: Recent Forecasts."

Technorati Tags: , , ,


Sunday, September 16, 2007

Security Module.

I last wrote about the Security Module in October 2006. Now that we have established the general framework, or the infrastructure of the system, and indeed I have begun building the parts into a usable system, I now want to formally start the software development. As I noted in the October 2006 posting the security module would be the first item of development, therefore, I can now declare on Tuesday September 18, 2007 that we are indeed in development.

A few of the bits that we will be using as our infrastructure are Google Apps for People, Ideas and Objects, and Java Web Start and Java Swing. So lets start with that and build from there.

Google Apps for People, Ideas & Objects.

www.people-ideas-objects.com is the domain (and company name) that has been selected for this project. This is now operational on Google Apps and I am very pleased with the fit and finish. Key to their offering is the ability to integrate a Single Sign On (SSO) for the entire domain. Once the user is logged in through Google apps they will have access to the collaborative environment and application specific functionality. Recently Google announced the closing of their acquisition, Postini. Google will now offer a level of security that is in my opinion second to none.

With Postini Solutions, you can secure all of your electronic communications - email, instant messaging and the web – and manage your company's communication policies from one central location. Postini Solutions can also make it easy to meet your archiving and encryption needs.

Best of all, it's all 100% hosted, so there's no hardware or software to install or maintain. Whether you're looking to transition from or enhance your existing messaging infrastructure for better control, Postini enables you to provide employees the tools they need to be productive while reducing the cost and complexity of managing those tools.
I can now say unequivocally People, Ideas & Objects has the most secure communications of all ERP systems. ;-) To my way of thinking, lets up the standard to a higher level.

As I noted in the security module definition last October, Sun's new Solaris Z File System (ZFS) and elliptical encryption would be used for all of the data and information on the server side of the system. ZFS provides a level of journal-ling that will add real value to the users of this system. Apple have integrated Sun's ZFS in their next operating system (Leopard) release. Sold as the "time machine" feature, it enables a user to look at the various iterations of the file from the beginning to the most current version. The user will then have tools that will enable them to select the best version of the file. Secondly ZFS is 128 bit, just as IPv6, allowing for an unlimited addressing capability.

These points will be the first elements that will be developed. Google Apps for People, Ideas & Objects will be upgraded with the Postini functionality, and the Solaris based server side will implement ZFS and Sun's elliptical encryption as base for all operations from the Operating Systems, Java, Network, Database and File.

Java Web Start and Java Swing

Integration of Single Sign On (SSO) between Google Apps and the server side will provide the secure collaboration environment and the secure "Cloud" based operations. This will all be wrapped in a package that the user will be able to access anywhere and anytime with any capable computer. For the initial downloading, Java Web Start, Swing and other components of the People, Ideas & Objects application will be a minor issue with the bandwidth that is available today. The "environment" this creates is one that meets the highest level of security for any and all programming environments. Java was selected for its adherence to strong typing and inherent security model. No other programming environment comes with this standard of security. Even Microsoft's .net environment cautions the user about the inherently weak security model.

Java DB

Embedded within Java Web Start and Java Swing client environment is Java DB, a relational database with a small footprint. Originally developed by IBM it was open sourced and made the default client side database for use in Java environments. This database will hold the environment and other variables of each user, and much of the client specific data the user has used, cached, collaborated or searched from their user account. Recall that we have selected the Ingress Database for the "Clouds" database. All the data from the Java DB will be replicated with the Ingress database. Additional search facilities of the server side or "cloud" environment have not been resolved at this time. Recall I was looking into the use of Enterprise Search and security firms to assist in this area.

This area is complex and daunting, however, the need for bullet proof systems in terms of reliability and security are necessary for the enterprise. Particularly in the manner and method that they are being used here. Much of this architecture has not been implemented in any industry. Lastly I would point out that if a user were to access their system on a public terminal or a machine in which they have only temporary use of, the application and data would be inaccessible to any prying eyes after the user had left. With encryption and Java, the systems variables would be persistent only in encrypted form.

IPv6

Recall we have instituted the IPv6 protocol as part of the Technical Vision for all Internet communications for People, Ideas & Objects. IPv6 is available to us through our ability to secure a Tier 1 vendor of bandwidth. Almost all computers are capable of handling the protocol. The security model of IPv6 adds elements of security at the protocol level and includes these technologies.

Specification

These specifications will be encapsulated into one Web Service where the user, upon authorization and integration into the system, will have seamless access to their information. The reason this is the first module being built is that everything will need to be built upon it. To retrofit this level of security to a current application would be more problematic and costly then it would be worth. I am pleased that I can specify this level of security at relatively little cost. (A reflection of how systems have developed in the past few years.)

The primary issue of what needs to be resolved is the restrictions on use of high-level encryption systems in countries that are unable to access and use the high level encryption algorithms. The work around may involve limiting the users to the countries that are authorized to use these types of systems. Our focus being Calgary, Texas and Aberdeen Scotland, limited issues with the systems use outside of these three countries will limit the risk of using these algorithms.

Thankfully much of today's technological development environment closely replicates Leggo, define it, get the parts and build it. Where we go after the security specification will be to adopt the data model from the Public Petroleum Data Model (PPDM), tune it and test it, and from there we can start building the Petroleum Lease Marketplace functionality.

Technorati Tags: , , ,

Thursday, September 13, 2007

The same, but different.

First there is an article in the Wall Street Journal energy blog about $100 oil. In it the following comment is made;

“The two arguments against $100 oil, the ability of technology to raise new supply and the ability of price to limit demand, are falling quickly by the wayside."
This blog entry is going to address the differences between what I am writing about and the assumption that technology will ride in to save the day. To do that, I want to refer to an article posted in the "ArchDruid Report" by John Micheal Greer. Firstly the "ArchDruid Report" is a blog that everyone should subscribe to, the quality of his entries are second to none.

Secondly, it is important to recall that Peak Oil, as a theory, is statistical in nature. Denoting that 50% of the overall supply of oil has been produced. The other 50% of the oil remains in the reservoir and needs to be produced. These last few barrels require the producer to innovate on the sciences and learn new ways in which to produce the oil and gas. Much of these barrels are located in remote areas and can come in different forms. I would however, not count the tar-sands as reserves that fall into the traditional 50% of remaining reserves. I think Peak Oil can safely preclude the tar sands reserves from the calculation and effectively consider those resources a bonus. I believe the innovation necessary to produce the remaining 50% of oil and gas reserves will require significant technological increases in the earth science and engineering disciplines. The increase in the science and the associated innovation will only come about after a reorganization of the industry around the Joint Operating Committee. (JOC) This reorganization needs a dedicated software development capability, the purpose of this blog.

The great technology hope is addressed well in John Greer's blog entry "Innovation Fallacy". In which he uses a science experiment to draw an analogy of why the hope of some great technology will save the day is truly misguided. I agree with him that this technological wonder thinking is misguided, and feel the need to assert the difference between what I am writing about in this blog and the hope of some great technology.

I would add to John Greer's point that the installed base of gas furnaces and internal combustion engines makes the change to any other type of technology very costly as well as daunting. How anyone could retrofit the industrial infrastructure to a new technology in less time then the past century it took to install today's infrastructure, would be dreaming. The thoughts that food could be converted to energy is an either / or situation. We either eat or we drive, your choice. This discussion needs to be more openly debated to help the majority of people understand the true marvel of engineering that mother-nature has provided us in the oil and gas endowment. The ArchDruid Report accelerates this discussion.

I would also add that best analogy that I can think of is that you had 300 workers doing a job. Paying them enough for adequate food and housing is the cost of getting the work done. We need to think in these terms and learn that the value of mechanical leverage available through oil and gas is significant. The ability to replace those 300 workers with one 200 horsepower forklift using 10 gallons of gas / day brings into focus the true dependence we have on energy. Without it we are dead, or at least the civilization we are currently familiar with is. I hope the energy industry will soon adopt this thinking so that we can get on with the thinking necessary to produce that last 50%.

Technorati Tags: , , , ,

Wednesday, September 12, 2007

Innovation through Global Collaboration: A New Source of Competitive Advantage

August 14, 2007

Alan MacCormack, Harvard Business School

Theodore Forbath, Wipro Technologies

Peter Brooks, Wipro Technologies

Patrick Kalaher, Wipro Technologies

This software development projects purpose is to create a transaction supported collaborative environment. The first steps in building this were initiated last month with the decision to use "Google Apps for your Domain." For a small annual fee we provide the user with a comprehensive collaborative platform. Recently CapGemini has announced a deal where they provide the integration of users work environments from Microsoft products to Google's. I think, based on my understanding of collaboration, Google Apps most closely replicate the way that work gets done. I find their product fit and finish as solid as Apple's, the move to Google App's was completely painless and instantaneous.

Why is this product category so important and what is a "transaction supported collaborative environment"? The product category is important because the next level of intellectual and social interaction can be facilitated in the software. So how and who will get the work done are important, but most importantly is that the aggregate intelligence of the group be represented in the actions the software provides. In answer to the second question of what are transaction supported collaborative environments?, well they don't exist yet and that is what I want to start building here for oil and gas. This working paper is available from Harvard Business School and begins the difficult task of identifying the needs of a "transaction supported collaborative environment" and the importance in innovation.

Abstract

One of the things that I have learned since being heavily exposed to collaborative environments is they are difficult, and the approach is never the same. Just as people are different, each collaboration is. The ability to proceed with preconceived notions just doesn't work. The need to adopt a flexible framework from the beginning and throughout the discussion is mandatory. How is it that collaboration brings the wisdom of the crowds? I think the authors begin to define it in this paper, so lets jump in with a clear definition of how collaboration is beginning to be used in industry.

Instead, innovations are increasingly brought to the market by networks of firms, selected for their unique capabilities, and operating in a coordinated manner. This new model demands that firms develop different skills, in particular, the ability to collaborate with partners to achieve superior innovation performance. Yet despite this need, there is little guidance on how to develop or deploy this ability.
This comment is consistent with the vision of this development project. As I have noted here in my research; the software defines and supports the organization. Before you can make a change it has to be implemented into the software first. Recognizing the JOC as the market structure of the industry will require software to be defined in order to mitigate the detrimental effects and enhance the benefits of collaboration.
This article describes the results of a study to understand the strategies and practices used by firms that achieve greater success in their collaborative innovation effects. We found many firms mistakenly applied an "outsourcing" mindset to collaboration efforts which in turn, led to three critical errors: First, they focused solely on lower costs, failing to consider the broader strategic role of collaboration. Second, they didn't organize effectively for collaboration, believing that innovation could be managed much like production and partners treated like "suppliers." And third, they didn't invest in building collaborative capabilities, assuming that their existing people and processes were already equipped for the challenge. Successful firms, by contrast, developed an explicit strategy for collaboration and made organizational changes to aid performance in these efforts. Ultimately, these actions allowed them to identify and exploit new business opportunities. In sum, collaboration is becoming a new and important source of competitive advantage. We propose several frameworks to help firms develop and exploit this new ability.
Facing "peak oil" the energy industry has no option to dabble in this area. This has to be a concerted effort to make these changes. Success is not an option and the time to change is now.

Introduction

I have shared my concerns with how the individual companies within the energy industry do not share the sense of urgency or concern for the overall supply of oil. Theirs is a commercial operation that is operating at record profits. The decline in their reserve base and production profile are an inherent part of the business and they are doing just fine. How this system gets built is a question I face every day. Individually, people within the industry comment that the idea of using the JOC is the right thing to do, however, no company will step up and make the first move. Its the worst Mexican standoff anyone could imagine. Irrespective of the reasons regarding innovation and the need for greater speed from an operational point of view. The new technologies are beginning to finally be assembled into their final parts. The capability and comprehensive nature of the offerings are now complete in terms of the needs for a system that is built for the purposes here. And that is the point of the authors in this next section.
This new model is being driven by a series of trends forcing firms to re-think traditional approaches to innovation. First, the complexity of products is increasing, in terms of the number of technologies they include. No longer is it possible for one firm to master all these skills and locate them under one roof. Second, a supply of cheap skilled labor has emerged in developing countries, creating incentives to substitute these resources for higher-cost equivalents. Third, different regions of the world have developed unique skills and capabilities, which leading firms are now exploiting for advantage. And finally, advances in development tools and technology combined with the rise of open architectures and standards have driven down the costs of coordinating distributed work. In sum, collaboration is no longer a "nice to have." It is a competitive necessity.
If peak oil is not a compelling call to action, possibly this technological trend should be.

Collaboration is not "Outsourcing"

I have written extensively about Professor Richard Langlois' theories around the boundaries of the firm. How the natural tendency is to have either the market or the firm be determined and configured to be the means to lower "transaction costs". And how today's Information Technologies can provide for lower transaction costs in a contractual or market environment. The authors provide further justification and clarification of how these changes are strategic and not inappropriate approaches to outsourcing.
Our study revealed dramatic differences in the performance of firms collaboration efforts, driven by contrasting approaches to their management. In particular, many firms mistakenly applied a "production outsourcing" mindset to collaboration, viewing the use of partners only as a means to achieve lower costs through "wage arbitrage" - substituting a US resource with a cheaper one of equivalent skill.
By contrast, successful firms went beyond simple wage arbitrage, asking global partners to contribute knowledge and skills to projects, with a focus on improving their top-line. And they re-designed their organizations, to increase the effectiveness of these efforts.
Managing collaboration the same way a firm handles the outsourcing of production is a flawed approach. Production and innovation are fundamentally different activities - while the former seeks to replicate an existing product at low cost, the other seeks to develop something entirely new and valuable. In addition, outsourcing and collaboration have very different objectives. Outsourcing involves producing a commodity asset or resource at the cheapest prices. Collaboration, by contrast, entails accessing globally dispersed knowledge, leveraging new capability and sharing risk with partners.
Firms which managed collaboration using an "outsourcing" mindset made three critical errors, as compared to more successful organizations:
  • They didn't consider the strategic role of collaboration, but saw it only as a tactic for reducing cost. As a result, their efforts were misaligned with their business strategy.
  • They didn't organize effectively for collaboration. Instead, they treated partners like suppliers of parts or raw materials, and manged them using a procurement function.
  • They didn't make long term investments to develop collaborative capabilities. Instead, they assumed their existing staff and processes could handle the challenge.
In combination, these errors meant firms systematically missed opportunities to use collaboration for competitive advantage. By contrast, successful firms found that attention to these critical areas generated new options to create value that competitors could not replicate. Below, we describe the principles that these latter firms employed.
Develop a Global Collaboration Strategy

A brief summary of where I foresee collaboration being used in the energy industry. The JOC may represent a property in any location, owned by companies registered in different countries and with different product knowledge and capabilities. The pooling of each producer's resources through the collaboration should be the first order of business. Having one company designated as the "operator", I think, is not desirable nor very productive. We see independent silo's representing the capability to conduct operations all around the world. And these capabilities are all duplications of one another and mutually exclusive to the needs of the various JOC's. With the shortfall of engineering and earth scientists in oil and gas, the ability to virtually pool individual resources necessary for the operation, based on the operations need is what the objectives should be. This is in line with the thinking of the authors of this Harvard document. The market of suppliers, vendors and contractors should interact with the JOC to support the operation and implement its plans for the facility or single well. This virtual environment supported and defined by the software, built for the energy industry by its users, and conducts the transaction requirements, the knowledge management and governance of the decisions made by the JOC. This is a very brief summary of this software developments proposal and I would recommend the review of the archives of this blog for further clarification of these ideas. Nonetheless, it is obvious to most that the need to have a purpose built system with a dedicated and focused software development team be deployed to make this application real.

The authors continue with the discussion of how their study reflected on two different strategies towards collaboration. I think it reflects my optimistic view of collaboration being a productive tool for management, and if the management see it as a threat or just another trend to be followed, they may miss many of the benefits.
Collaboration received little senior management attention; when it did, it was because expectations were not being met.
Leading firms, by contrast, developed an explicit strategy for collaboration, designed to support their business goals. In contrast to organizations that viewed collaboration only as a tool for reducing cost, these firms considered a variety of more strategic benefits, in particular, assessing how collaboration could improve their top line through increased product differentiation. Successful organizations achieved this in two ways: first, by leveraging a partner's superior capabilities (i.e., know-how that the firm did not possess internally); and second, by accessing a partners contextual knowledge (i.e., knowledge that the partner possessed by virtue of its local position). In combination, these benefits comprise the "3C's" of a global collaboration strategy.
The authors continue to assert the need for management buy-in. For the energy industry to succeed in this software development proposal there has to be a high level of commitment to it form management. I think the salient warning from CapGemini about these technologies affecting operations today is something management should think clearly about. Are these back door solutions to be stomped out, or should they be welcomed and supported as legitimate methods of achieving the necessary work. I also believe the time for these types of solution to be built and prospectively developed is drawing close. Management needs to get behind this with the long term perspective of developing these types of systems for the next 3 - 4 years.

Lowering R&D Costs
Leading firms however, lowered cost in a different way. Rather than swap one resource for another, they "reconfigured" their operations to optimize performance at the system level. While the decisions they made in isolation, sometimes appeared to add cost, these firms understood the need to change the way they organized to maximize the value of collaborative efforts.

Leveraging Superior Capabilities
Leading firms focused greater attention on how to leverage partner capabilities. We observed two broad types of capability in action: First, the ability to rapidly bring online large amounts of capacity, allowing firms to lower time to market and increase responsiveness, while avoiding the cost of full-time staff; and second, the ability to access unique competencies, technical know-how and / or process expertise that firms did not possess internally. Successful firms sought partners with a blend of both abilities, giving them instant access to a repertoire of skills not available in-house. As one manager recalled, "It takes us nine months to find and hire a new employee. But using our partner, we staffed up in two weeks, accessing a skill that we don't have internally."
Thinking Strategically

Thinking strategically is the point that I have tried to make. Clearly the easy oil is gone. The costs associated to produce one barrel of oil are increasing in lockstep with the costs of discovery. The amount of engineering and earth science effort per barrel of oil has probably doubled in the past 5 years. And it will continue to increase, not decrease over time. With the shortfalls in human resources today, I believe Adam Smith's division of labor theory will provide the additional resources necessary for the industry to deal with the difficult problems ahead. A reorganization around the JOC is 100% in compliance with the cultural framework of the industry. Pooled human resources, supported by markets will provide the productivity increases that Adam Smith's theories provide. A theory which has been proven correct for hundreds of years. This organizational change can not be implemented without the software defining and supporting the industry. Without the software a firm will be relegated to manual systems or loss of the opportunities I just wrote about. These are the associated choices for management today and the point of the authors.
To Illustrate, consider the strategies of two firms - A and B - depicted in Figure 2. Initially, firm B has a dominant position, with lower cost and superior differentiation. But firm A has identified opportunities to improve its position through collaboration. It can move along the horizontal to position C, achieving lower cost, or along the vertical to position D, achieving superior differentiation. Or it can move to position E, which is superior on both dimensions. In essence, collaboration has the potential to move firm A to the "frontier" of the space joining C,D, and E. Contrast this with a firm that views collaboration only as a way to lower cost; this firm sees only one position to move to. While this may be a good choice, this firm does not see that it is not the only choice.
That although I have stated the reorganization to the JOC is consistent with the culture of the industry. The culture of the industry is a very competitive one. The ability to compete and succeed in oil and gas takes a certain capability and understanding that many have stated as being second only to NASA in terms of complexity. From my 30 years experience, I agree. Changing this competitive culture to one of co-opetition or whatever buzz word that comes along will be difficult. In line with this thinking I have suggested that the land base and the companies research and development capabilities are their future competitive assets. Moving to this thinking will take time, and indeed, may never occur. I have placed my investment of time and energy in the idea that the common sense use of the JOC will ultimately prevail, with or without the support of current management. I have an undying faith that the competitive structure of the JOC will accelerate the capacity within the industry to the point where the bureaucracy would otherwise not be capable of competing. The area the authors call E in Figure 2 is where I expect to see the JOC leading the industry.
While successful firms often used different terms to those above, all had developed similar methods to align collaboration efforts to their business strategy. Collaboration received visibility at a senior level, and was an integral part of the strategic-planning process. Increasingly, the focus was not on wage arbitrage, but on using partners to increase business value. these firms grew more sophisticated in the use of collaboration over time; by contrast, poor performers remained stubbornly focused on cost.
Organize for Collaboration

Innovation in oil and gas is a difficult prospect. As I mentioned earlier in this post, the earth sciences and engineering disciplines make the industry second only in complexity to the space industry. There is another element of the complexity that needs to be considered and that is uncertainty. The ability to say unequivocally that this is factual is difficult when your talking about forces several thousand feet below. The uncertainty element invokes the commercial environment on the producer. Then to make things even more difficult the innovation has to be progressive enough to push the science. And as I noted in the plurality writings, there is a strong influence of the science in innovation, which leads to greater understanding and a further development of the science.
The need for a different model can be seen by considering the challenge of partnering along two dimensions: The degree of uncertainty over the product to be produced; and the degree of uncertainty over the process to produce it (see Figure 3). Replicating an existing product (i.e., production) involves little uncertainty while developing a new one (i.e., innovation) is far more uncertain. Similarly, some processes are routine and easily specified whereas others are idiosyncratic and rely on trial and error learning. When firms face little uncertainty on both dimensions - the arena of production outsourcing - traditional models work well, given firms can specify what they want and how it should be made. As uncertainty increases however, a more collaborative approach is needed.
It is at this point that I would also assert that the production process, which is inevitable and in constant decline, adds further uncertainty above and beyond that of the firm. This is why $79 oil seems very cheap to me. The following quotation of the authors provides a good understanding of the work that is done at the Joint Operating Committee. This is how the industry has developed and how it functions. Unfortunately all of the software development projects fail to capture this organization and its role in the day to day operations. This is the business of the business, and due to a number of forces the business of the corporations has become the oil and gas regulatory compliance, tax compliance, SEC compliance and this is where the ERP focus has lead the organizations to focus and consume their time.
Leading firms viewed partners as an extension of their own development organizations, seeking their participation in meetings and including them in internal communication. As part of this philosophy, they required greater continuity in partner staff, in contrast to a transactional model, in which people move in and out of projects. This ensured the "tacit" knowledge of a projects' context was retained, and improved communication between teams. As one manager explained, "It takes time to appreciate the skills of each team member and understand how to work together. When people leave, we have to go through that learning curve again. So we put a premium on ensuring staff continuity".
This focus on the business is where the industry has to move to. Compliance and governance has to be as a result of conducting the business of the business. As simple as that sounds the administration of oil and gas has become completely divorced from the reality of the business. This is primarily the result of the software vendors focus on ensuring the technical accounting and compliance of the firm.

The authors now approach one of the difficult areas of collaboration. Intellectual property (IP) is the source of much value in today's economy. Who owns what and where did it come from are important considerations when the partnership as represented by the Joint Operating Committee is concerned. Traditionally the Chairman of the JOC used his firms resources to operate the programs that were agreed to by the partnership. With the prospective pooling of the technical resources as proposed here, the intellectual property can become problematic. The manner in which IP is managed in this industry is consistent with the keeping of trade secrets. I have noted here before that the stickiness of knowledge moving through the organization is contrasted to the leakiness of knowledge through the various industry related disciplines. If someone discovers something new, it is generally fairly well known on the street in a few weeks. Therefore no one has the right of that property, and most importantly copyright law is designed to disseminate ideas throughout the community as quickly as possible. There needs to be some soul searching as to how firms manage their alleged secrets and the result of their research.
The final area in which firms made different organizational choices was in intellectual property (IP) management. Global partners increasingly develop their own IP - new components, technologies and processes - to improve project performance. Furthermore, collaboration often requires that partners re-use and add to a firms existing IP in the search for new solutions. Given these trends, traditional approaches to IP which assume that a firm must develop, own, protect and isolate its IP are increasingly outdated.
and
While successful firms in our study differed on the specifics of their IP policies, their actions reflected a common shift in values; towards a more open and flexible approach. these firms sought to leverage partner IP, focusing on the cost and speed advantages, which outweighed the concerns about the need for control. They developed mechanisms for partners to access their own IP, in a way that facilitated collaboration but ensured the protection of competitive assets. And they shared newly developed IP when the firm and its partners could benefit form its application, as long as the uses were not competitive.
Build Collaborative Capabilities.

Collaborative skills are hard to come by without the efforts of many who are willing to contribute and learn. These are standard fare for the process of collaboration and I apply this throughout the industry. The smartest, most educated and most recent additions to the firm are needed to adopt these perspectives. Here the authors begin to identify some of the salient points involved in good collaborative practices.
The final area separating leading firms from others was their willingness to invest in developing "collaborative capabilities." All too often, firms assumed that their existing employees, processes and infrastructure were capable of meeting the challenge of collaboration. But successful collaboration doesn't just happen - it is a skill that must be learned. Rarely do firms get it "right first time." Leading firms recognized this reality and made investments to enhance their performance over time.
and
Successful firms targeted investments in four areas: people, process, platforms and programs. We call these the "Four Pillars" of collaborative capability (see Figure 4). These investments were typically funded outside the budgets of individual projects, given few projects can justify the levels of infrastructure needed to perform well on their own. In essence, leading firms made a strategic decision to invest in collaborative capabilities, and sought to leverage these investments across projects and over time.
Developing People

My first truly collaborative environment came about in 2000 when I started my on-line MBA. The university had over 1,500 students located throughout the world and closely tied together in a Lotus Notes collaborative environment. It was fascinating to learn so many things about businesses that were in Kuwait, China and even your own province. My perspective changed over the course of three years of study. And I learned to adopt a broader point of view about the contributions that I made. Asking key questions after attempting to learn the unique perspectives of the participants and then attempt to build on the quality and quantity of knowledge held within the diverse groups, were skills that are not easy to come by. The intensity of the learning was heightened as a result of the close collaborations.
Superior performance in collaboration requires people with different skills, given team members often lie outside the boundaries of the firm, are located in far flung countries and have vastly different cultures, The "art" of management in such projects is in finding ways to exert influence over resources not under a firms control. Rather than a focus on deep technical expertise, managers therefore require a much broader skill set, associated with the need to orchestrate and coordinate the work of distributed teams.
I have not been able to specify the manner in which the process of this software development will proceed. Collaboration is a key component, as will software that defines the process and the roles of individuals and companies. The way that the Java Community Process is done is a given as far as I am concerned, however, there are other elements of how things get built that I have to research and determine before we start writing code.
Most projects we observed employed a formal product development methodology based upon a modified "stage-gate" or "waterfall" type process. These processes are increasingly popular ways to ensure greater control and consistency in the execution of projects. But these techniques, and others that share their roots, are often predicated on the assumption of single-site development. There is a need to re-think how they should operate when managing the distribution of work among a team of global partners.
Building platforms

The following in my opinion is a call to action for these types of activities to be conducted, coordinated and implemented on an industry wide basis. Decisions are being made without the input of others to ensure a timely start to these developments. Selecting the Google Apps as the platform to begin the collaboration and develop is a rather obvious choice, particularly when you consider where Google's engineering and innovation may take the product too.
Leading firms developed technology "platforms" to improve the coordination of work. These platforms comprised four main parts: First, development tools and technologies to improve the efficiency of distributed work; second, technical standards and interfaces to ensure the seamless integration of partner outputs; third, rules to govern the sharing of intellectual property among partners; and fourth, knowledge management systems to capture the firms experience on how distributed work is best performed. This collaboration "infrastructure" was leveraged across multiple projects over time. The goal was to promote a long-term view of the assets needed for effective collaboration.
For the risks and errors can be and are very large.
Consider the troubles at Airbus in developing its flagship A380 aircraft. Airbus' German and French partners chose to work with different versions of the Dassualt Systems' Catia design software. But design information in the older systems was not translated accurately into the new new one, which held the "master" version. With a physical mock-up, these problems remained hidden throughout the project. The result: 300 miles of wiring, 100,000 wires and 40,000 connectors that did not fit, leading to a 2 year production delay at a cost of $6bn. Yet the cause of Airbus's problems was not in choosing different versions; rather it lay in the lack of an effective process for dealing with the problems this created.
Managing Programs.

The energy industry has a choice. They can begin serious efforts down this road with the objective of building systems to enhance innovativeness and performance, or continue on in the manner that they currently are. At some point in time someone will realize the intellectual property that I have developed here in this blog is the constructive direction of the industry. If not then we would have the ability to modify it to make that assertion valid.
Successful firms managed their collaboration efforts as a coherent "program," in contrast to organizations which ran each project on a stand-alone basis. A program view was critical given collaboration projects rarely met expectations early on, and performance often deteriorated when the scope of efforts was increased. Leading firms did not differ from others in this respect; but they did differ in the rate at which they improved. Top performers put in place mechanisms to help improve their collaboration skills over time.
A New Source of Competitive Advantage
Firms that devoted attention to the three areas above - strategy, organization and capability development - were more successful in their collaboration efforts. For a few firms in our study however, these efforts not only lent support to their existing business strategies, but also led to new value creation opportunities. Their investments to build capabilities, in turn, created options to pursue strategies that could not be replicated by competitors; especially those that managed collaboration like outsourcing. For these firms, collaboration had become a source of competitive advantage (see Figure5).
In our view, Boeing's source of competitive advantage is shifting; it is less and less related to the possession of deep individual technical skills in hundreds of diverse disciplines. While the firm still possesses such knowledge, this is no longer what differentiates it from competitors such as Airbus, who can access similar capabilities. Rather, Boeing's unique assets and skills are increasingly tied to the way the firm orchestrates, manages and coordinates its network of hundreds of global partners. Boeing's experience is increasingly common across the industries we observed: Collaboration is becoming a new and important source of competitive advantage.


Technorati Tags: , , , ,

Photos Courtesy the authors.