Beyond the red Horizon.

Like CNRL's Mission Statement says, lets have some "fun". First off, with 3 Chairman and 40 vice-presidents is it any wonder they have such high stock option compensation costs? Think of it, that's 430 fingers (including thumbs) that can be pointed at the responsible culprit. Doesn't even include the C class executives.

As we look out just beyond the Horizon, (Horizon being CNRL's heavy oil project) I think we see some critical issues being presented to CNRL's politburo. Critical issues that may have escaped the central planners and I don't want to get into a finger pointing exercise as to whose fault it will be. The number one issue that I think this management is soon to face is the credit crisis that is brewing in Europe and the U.S.

Specifically I think that financial capital is in a state of seizure that is unlike anything we may have seen in the past. The impact of this credit crisis will be limited to those institutions that are involved in granting financial capital and those that need it. If you need financial capital don't bother knocking on the door, you won't know what the response will be.

CNRL is in the unfortunate position of needing a lot of capital. How this company thought they could reach this far beyond the horizon is a surprise to me. With $26 billion of debt on the books, a whopping $3 billion working capital deficiency, they head into the final stages of funding their largest project of all time. Not only is the capital necessary to finish off the project, the cost overruns of an additional $1 billion were recently announced with more schedule slip; and that doesn't include any of the operating costs necessary for start up. Yikes.

I think the analogy to the housing market in the states may be appropriate. Instead, we see an unused and unneeded heavy oil plant sitting idle. The only activity you'll see is the local welders taking back their unpaid work. The one thing we do know for sure is the bigger they are the harder they fall.

Lets assume for a moment that I'm wrong. And the project does start up as planned. Where are you going to put another 100,000 boe / day of production? Tanks? No pipelines currently exist to take the product out of the province. No refiners are able to take on more heavy oil production. This of course assumes they can find and finance the condensate volumes necessary to dilute the production.

This nightmare scenario assumes that the management has all the other aspects of the operation under tight control. Recall the losses that were incurred in the second quarter of this year from stock option compensation and hedging losses. CNRL reported a $350 million loss in the second quarter of 2008. But lets be serious, this high cost heavy oil production project will start with profits and cash gushing out of the ground just like Jed Clampett from the Beverly Hillbillies experienced.

I know if I worked at CNRL, I'd cash my options and start that retirement. When management are gaming the stock price with tours to Warren Buffet and Bill Gates, and lets not forget Paris or Britney. Goosing the price of the stock doesn't have the desired long term effect when Buffet can't follow the script. Jumping ship makes the most sense. Particularly when it becomes obvious the other 45 management types are out of good ideas.

I wish to appeal to those that have an interest in making this software development project real. If you know of a producing company, or an oil and gas investor that is interested in sponsoring this project, please email the URL of the web log to them and join me here.

Pig compliments of http://designedtoat.com/pig.htm

Technorati Tags: People's Management Failure Pig

Paris Hilton on Tuesday, and Britney on Wednesday...

We see the spectacular increase in the four little pigs stock as a result of the plant tour of Warren Buffet and Bill Gates. Such is the focus of this management that they know they can boost their stock price by inviting celebrities for plant tours.

I would suggest that Paris and Britney ask the four little piggies how it is they qualify for $3.3 billion in stock option compensation.

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News Alert: Pigs can fly.

I have now, for all intents and purposes, completed the series of reviewing the four little piggies. What have we learned. I think the senior bureaucracies of the oil and gas industry have proven they are relic's of a time that has past. The points that I take from their earnings related comments are all slanted toward the positives in the oil and gas business. Positives that they have no direct effect over. At the same time they attempt to hide the difficulties that are a direct result of their greed and incompetence.

Lastly I suggest that they are unable to understand the nature of their business due to the speed and velocity of markets, and the archaic use of Information & Communications Technologies. Systems and procedures that were developed for businesses that existed in the 1980's and maybe the early 1990's. Items such as;

• Highlighting their revenue growth and operating profits.

This point I find particularly galling. The revenue's are up due to the prices. Production is actually down year over year in most instances.

• Noting the costs associated with hedging is unrealized.

And therefore not relevant to the earnings potential of the firm. These hedging losses to me reflect that the management are unaware of which business they operate in.

• Noting the costs associated with stock options are also unrealized in reporting cash flow numbers.

Highlighting cash flow numbers vs. net profit numbers has the ability to confuse the press and create a distraction to their "actual" performance. What the management seem unaware of is at some point those checks for hedging and stock based compensation will be written and will affect future cash flows. I suggest the time these cash flows are impacted will be well after the current crops retirements. Leaving the industry in complete shambles.

My ability to contrast the existing management failures with the vision and research conducted in this project provides the justification for proceeding with this software development project. As we move into discovering the sources of revenue that will fund this development in the long term, it should be clear that I have not received any support from the existing management. They are not interested in providing an alternative method of organization that would compete with their current methods. Methods that have been very lucrative for a management that does nothing positive.

Clearly the attention of the world is now focused on China. These Olympic Games promise to show the world how China has grown in their standard of living, and how it competes with us for energy. How the current crop of management was unable to see this trend is due to them being blinded by their stock options. There is nothing better then competition to bring out the best in human kind. Particularly, competition in methods of organizing an oil and gas firm. Therefore I will resume writing once the games have closed and we re-focus on these problems together.

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What does Professor Carlota Perez have to say.

Professor Carlota Perez research shares a great deal of the founding and grounding of this software development project. Her influence can be seen in the current Draft Specification and the approach we are taking to build this software. The Perez label of this blog has nine items in which I reviewed a part of her many presentations and papers. Her ideas can be found in these articles, videos, slides and current papers, here, here and here. I want to review the last paper in this post, but first there is a video that she provides on her website that summarizes her research in ten minutes. That video is here and I highly recommend it for the interested users and developers of this software development project.

Her identification of the economic era we find ourselves in resonates with much of the disruption that we are seeing in the world economy. My initial introduction to her theories was in this 2005 Booz Allen Hamilton Strategy & Business article. I am particularly fond of the seventh slide in this series where she details the effect on our lives.

• A new way of living.
• New Ways of transportation and communication.
• New ways of producing.
• A new way of working.

Beginning with my review of Great Surges of Development and Alternative Forms of Globalization. January 2007. I am focusing more on Professor Perez' Section 5 "Why Globalization" and Section 7 "The Institutional Challenge" for new information and ideas based on her studies. Particularly with this jewel.

Why Globalization

Still, the question may arise as to why globalization should be inevitable. The answer is that reaching for giant global markets is a natural consequence of applying the potential of information and telecommunications technologies (ICT). Intangible products, not only recognize no physical frontiers by traveling instantly and invisibly through communications channels, they also have zero or negligible marginal cost and no structural limit to market growth. Yet they often have high research and development investment, hence the need to maximize markets. Moreover, the greater the number of users of a particular network or product the greater its value and the lower the prices can be, while maintaining growing profitability. p. 17

and

In terms of the size of firm they can accommodate, ICTs go well beyond the maximum size that the old international or transnational corporations were able to achieve with their pyramidal structures. Not only is it possible to guide, monitor and control a truly giant organization when it is networked, but territorial coverage and organizational complexity are relatively easy to handle with ICT and are likely to become much more so with further adaptive innovation. The technology itself is all-pervasive and can be incorporated into the most sophisticated processes for biotechnology, nano-technology or space travel as much as into the most traditional production systems, from global positioning of sheep to information about fishing conditions for small fishermen. The more varied the users the wider the innovation and wealth creating space. p. 18

In other words we are justified in including the entire scope of the globe in terms of our reach. And that an enabling technology, such as this project, will have a material affect on the oil and gas industry. This should be expected, I think, and the users and developers that get involved here will be provided with significant opportunities to expand their reach.

Regarding the size and scope of global firms, the logic of the potential leads to assessing the whole planet for comparative advantages and estimating production and transaction costs “as if” the economic space were unlimited. The greater and more diversified the economic space for global firms, the better for the production networks. p. 18

The research that was done on Professor Richard Langlois' papers and others on transaction cost theory was not a mistake in terms of the value that it will have on the oil and gas industry.

Thus globalization in some form or other is inherent to the nature of the current paradigm, as much as national economies were to the previous. The specific form that it takes in the future and the institutional framework that will guide it will depend on a multitude of factors, political, social, ideological, economic and even climatic. p. 18

The Institutional Challenge

I have been critical of the established oil and gas companies. They have refused to sponsor this software development project. Reviewing Professor Perez' research shows this is to be expected. They are dying off and the new will be built to move in and replace the old. If the International Oil Companies lost 600,000 barrels of oil per day in the last year, next year will see an ever increasing volume of decline. The investors in those companies should support this software development so that they have a means to manage those investments in the future. Investments that may be sold at fire sale prices by the IOC's. As Professor Perez' research into how previous situations developed

Unleashing all the growth potential of each technological revolution in the deployment period requires overcoming the basic tensions inherited from the installation period. A changeover of power would have to take place, turning over the helm of the economy from financial to production capital. In concrete terms this means favoring long-term over short term investments; stimulating production investment and employment-creation rather than feeding the financial casino or housing bubbles; aiming at innovations for true market expansion and not for quick financial gains; inducing the search for profits from real production and not from manipulating money; in short, favoring the real economy over the paper economy at all levels: global, national and local. p. 20

As mentioned in the previous post, as we search for forms of revenue to support these development, Professor Perez provides an interesting outlet.

The finance-led neo-liberal version of globalization applied up to now can be said to have accomplished the “destruction half” of institutional creative destruction. Perhaps that was unavoidable given the differences between the mass production paradigm and this one and the need to dismantle much of the institutional framework set up for the previous one. But, if “State fundamentalism” could have been seen as an obstacle during the installation period of the ICT surge, “market fundamentalism” is now a major obstacle for unleashing the deployment period. The continuation of unrestrained and unregulated free markets will only worsen the tensions that are the direct result of the operation of those very markets. Governments must intervene to shift the tables, not by reversing into the old mode but by creating appropriate institutions (and / or transforming the existing ones) in order to foster the deployment of the current paradigm. That is the creative half of institutional modernization. p. 20

This comment resonates with me. If the free market was working, this project would have been funded. But for the controversial nature that this project attacks the established power groups, this project will never be funded by those currently in power. Evidence of this is their ability to withstand production losses with no concern, other then for their stock options. Possibly many of the governments, such as Alberta's, the United Arab Emirates, Saudi Arabia, Russia, Britain and the U.S. will be the groups that realize the need for this projects funding. I think that this is a valid question to be asked. Are markets working? If so how in a free market economy could the global housing bubble be inflated so high. Professor Perez has a valid point in raising this controversial topic.

Professor Perez points to the methods used by President Roosevelt in the previous "turning". One could ask what is the need for Ben Bernanke to go so far in supporting the decline in housing. And the zeal at which each party's candidates are offering government solutions to fix the problems in the markets, so that the markets themselves do not collapse.

If it all sounds utopian, the reader might try to imagine the situation in the previous Turning Point. In the midst of the 1930s Roosevelt was being accused of communism for wanting the State to intervene in the economy to create employment and introduce various social security measures to confront the depression. At that time, few would have been ready to give credence to someone proposing the design of a Welfare State with full employment and with workers’ wages being sufficient to own a house full of electrical appliances and with an automobile at the door. p. 21

and

At the level of individual countries, or regions, opportunities are a moving target and action has to be designed for the conditions of tomorrow and not those of yesterday. There are three tools that can help visualize possible future directions and help viable design:

• understanding the process of assimilation of technological revolutions;
• grasping the logic of the techno-economic paradigm and
• searching the world for successful experimentation already underway.

Contributing elements for the first two has been the object of this paper. In the realm of social experiments there is much to analyze and reflect upon in today’s world. p. 21

If you are not familiar with the writings of Professor Perez, I hope this blog post provides strong motivation to begin a comprehensive view. I have highlighted many of the links in this post and hope that you find her work as stimulating as I do. It is pertinent to the users and developers in this project, pertinent because it provides a road-map for which they can follow through a rather turbulent time.

If you or someone you know can make this project real, please use the PayPal button on the left hand side, and join me here.

Technorati Tags: People's Perez Market Failure

This little piggie built a house of straw.

Canadian Natural Resources Ltd (CNQ) have finally announced their earnings, or should I say losses. These were originally schedule for Monday this week, and for some reason they moved them to today. Hmm.

From a management point of view this company performed exceptionally. For just the second quarter of 2008 they recorded an additional $459 million in stock based compensation. We should all toast CNRL for their audacity and guts in providing these quarterly reports.

From a company point of view there is a lot to be concerned about. Not only is the management out to lunch with respect to lining their pockets. They insist on proving to the world that they have no idea what business they are in. The hedging got a little hairy, and as such they had to record a $2.369 billion charge for "risk management activities". I think they should call it "activities of a risky management".

Over the last 12 months the firm has realized a decline in production of 41,024 barrels of oil equivalent. Oddly enough I don't think this was the reason that management awarded themselves.

This company has stepped on the proverbial land mine and are about to be slaughtered like a pig. In this day and age with the credit crunch beginning to affect the general economy. This management took it upon themselves to bury themselves with debt. Just like a pig in a mud pit. I would say this firm is on red alert to try and save itself from the receivers.

How in the world could a firm run themselves into a negative working capital position of $3.1280 billion. Simply by going into a lot of debt. $26.260 billion total debt is enough to collapse the firm just from the juggling necessary to keep that much revolving.

The over reaching and bad management have come to the point where serious action should be taken. The stocks activities this past week will certainly have the Securities and Exchange Commission sending over some Wells Notices. So I'll leave it to SEC Chairman Christopher Cox, no relation, to do the heavy lifting on this one.

Oh and by the way the firm only lost $347 million for the second quarter of 2008. So the shareholders will have to be happy with that. After all what can they do about it? If you know of an investor or employee of CNRL give them a kindly email of this blog post so that they can donate to this worthy cause, and join me here.

Technorati Tags: People's Management Failure

Marshall Carter on MIT Video

A new video worth watching from MIT has Marshall Carter, Chairman, Board of Directors, New York Stock Exchange Group, and Director, NYSE conducting a case study in the changes he implemented.

Before I get into this video I want to communicate the process this software development project is taking.

• May 2004, Publication noting the Joint Operating Committee was the legal, financial, operation decision making and cultural framework of the oil and gas industry. And was the means in which the oil and gas industry would become innovative.
• May 2004 to December 2007, research into the validity and requirements of a system to support the innovative oil and gas producer.
• December 2007 to July 2008 Publication of the Draft Specification.
• July 2008 Determine the current management, systems and leadership are failing societies demands for energy.
• August 2008 Define and develop sources of revenue. Commence development (defined below)

Marshall Carter in setting out his case asks the following questions. I have answered these same questions from this software development projects point of view.

1) How do we know when to change?

There has to be a wide consensus that now is the time to change the current management and systems within the oil and gas industry.

2) How do we know when to launch our new strategic direction?

When the problem is evident to every energy consumer and every energy investor that the current course is a dead end.

3) How did we do it.

In a few years we may be able to answer this. I would suppose that the timetable above adds some clarity as to what has been done and where we are going.

4) How did we convince employees.

Most of the users and developers are sourced from the energy companies themselves. This is necessary as they are the ones that know and operate the business. They are also aware of the current situation and direction at the oil and gas company is futile and may not survive the disruptive changes that the industry will be going through.

5) How much effort would be needed to ensure the changes stick.

I believe that the Draft Specification answers many of the questions of what fits where. It also answers many of the problems that are systemic in the industry today. This system is the most logical means for a producer to operate. Therefore the natural tendency of users is to default towards the Draft Specification.

Marshall Carter then states that it was necessary to "build a vision from the bottom up". If anything, I think the hostility that management has shown to this project, and the hostility that I have been able to return prove this is not a "top down solution".

Carter also states "show those that resist change, that change is irresistible." I think forward progress of this software development project will soon prove to the management their way is dying. The following eight items are what Carter suggests is necessary for leading successful change. My response to each point is provided.

Leading Successful Change

• Sense of Urgency

There is no greater sense of urgency then the one that the energy consumer currently faces.

• Guiding Coalition

The use within this project to use the collaborative tools and methods to make this project a result of the users and developers who work within oil and gas. What has not been expressed before is an appeal that I think resonates with the users. Users have ideas on how to make things better. They don't have access to change the Information Technologies that they are required to use. This software development project enables them with a software development capability, source of revenue and chance to affect change within their area of work.

• Vision & Strategy

A vision and strategy that is grounded in the research and academic thinking. A strategy and vision that captures the possibilities of the Information Technologies available to users today.

• Communicating the Change Vision

Blogs and Knol's are powerful tools for reaching out to like minded groups.

• Empowering Broad based action.

This is more of a personal decision for the users and developers to make. No company or manager needs to approve their participation here. People with Ideas and who need software Objects to help them do them their jobs.

• Short Term Wins.

We can move to provide the short list of development targets (listed below) within a reasonable period of time.

• Consolidate Gains and Provide More Change.

The development targets should enable the community to move further and faster then they ever believed they could.

• Anchoring new approaches in the culture.

Using the Joint Operating Committee is enabling the use of the culture of the industry. If this is a requirement of successful change, what does that say about this software development project?

Marshal Carter towards the end notes that what gets measured gets done. So I want to set out these short term targets for the community.

• Establish a user based definition of security and access control requirements.

• Establish "User Archetypes" that implement the Military Command & Control Metaphor.

• Develop and test the Security & Access Control module using Sun's Federated Identity and Project Hydrazine.
• Go live with the users of this systems as soon as possible. Iteratively improve the products user interface, performance and security to meet and exceed user based standards.
• Resell the security offering under license to other industries.
• User based Wiki development towards final specifications.

Lastly Carter notes "Engineering systems at this point is a thinking [and building] process which allows you to identify and solve problems". So lets get to work. Find people to donate and participate in this project, and join me here.

Technorati Tags: People's MIT Video Organizational Change

That's 3.7 million man years per day, lost.

In the book "Profit from the Peak" it was noted that each barrel of oil is leveraged to 18,000 man hours of equivalent labor. This is intuitively logical to most energy consumers. Based on Friday's New York Times, the one year 600,000 barrel per day production loss by the International Oil Companies (IOC's) translates into almost 3.7 million man years of work / day. That is each and every day from now on.

It's time to make this software development project real. Quoting Professor Murray Rothbard’s (1985, p. 283) words:

“Entrepreneurial ideas without money are mere parlor games until the money is obtained and committed to the projects.”

It is therefore time to stop playing parlor games and get down to the job of building this software development project. If the loss of 3.7 million man years per day doesn't quantify the size of this problem nothing else will.

Therefore I am asking everyone and anyone who has access to a budget, investor, oil and gas firm, energy consumer or friend. And would like to donate towards developing this project. Please click on the newly installed PayPal button to make a donation to this worthwhile project. The service accepts all major credit cards and since I will be declaring these donations as revenue, you will be able to deduct the donation from your taxes.

Most of all, thank you, and join me here.

Technorati Tags: People's Call-to-Action

HBS Working Knowledge Forum on Stretch.

This forum is asking a critical question regarding the performance of firms and maybe more importantly, the performance of management. Click on the title of this entry to be taken to the forum. 

Can anything be achieved within a moment of time? Are quarterly and annual metrics obstructing what is possible? I know each day I struggle to move towards the goal of building the People, Ideas & Objects system. Each day I am frustrated by an inability to attain that objective. And each day I marvel at the progress we have been able to achieve in moving this software development project forward.

If I look at a moment in time, the moment that the May 2004 preliminary research report was published, as a fixed point in time. And I assume that it was a finding of substantial value for the oil and gas industry. Each day since I have risked the value of the idea by attempting to move it forward. What I have relied on is my education and experience to ensure that no risks would obstruct this community proceeding in the right direction.

As our speed increases and the challenges of blind bunny trails distract us from what is important. We must be aware of our risks to derail this train at all times. If we focus on the risks, then the train will derail for certain. No one individual, no one group will have that opportunity if we leave the future of this project in the hands of those that care the most, the users.

This post was motivated by an interesting offer from Professor James Hesketh of Harvard Business School. His offer is to debate these points in a forum until August 27, 2008.

Please, Join me here.

Technorati Tags: People's Harvard Ideas Management

Exxon, Shell, Apache...

The issue of declining production has struck the majority of producers in the oil and gas industry. The New York Times suggests total production declines may reach over 600,000 boe / day. Exxon, Shell and Apache, just as many others have reported, are showing a trend that supports the hypothesis of this blog's preliminary research report. That being;

• The corporate hierarchical organizational structure is an impediment to progress and most particularly innovation.

• Determine if the industry standard Joint Operating Committee, modified with today's information technologies, provides an oil and gas concern with the opportunity for advanced innovativeness.

Producers have also been spending record amounts on capital projects. Much of this increased funding is diluted by the costs associated with too-much-money chasing too-few-skills. Nonetheless producers are involved in a record number of projects. How often in life has doing more of the same; worked to mitigate fundamental changes in an industry?

Within the interpretation section of the preliminary report I suggested;

It is suggested in this research that the speed that a bureaucracy can adapt and change is inadequate for the operational demands of a future oil and gas operation. Innovation within the oil and gas industry will be required in order to keep up with the natural and increasing rate of decline in production. Where the sciences of geology and applied sciences of engineering, which cover a broad range, will need to progress substantially in the next 10 years in order to achieve the demand requirements of the North American energy consumers. p. 71

This claim of mine seems to have a tenuous hold on the legitimacy of me asserting my hypothesis is correct. What evidence is there that the dynamics of the underlying earth science and engineering disciplines have expanded to a higher level of understanding? A level of understanding that a bureaucracy, however large, is unable to comprehend or implement.

Possibly one of the most appropriate statements that has developed in 2008 is "the easy oil is gone". Captures the entire situation very well in my opinion. I'll be the first to agree that the contents of the preliminary research report were only extensions of my "sensing" that the demands of the business were accelerating beyond the bureaucracies capabilities. After 30 years in the business it was generally known that things were getting tougher, much tougher.

And not to discount the research that was done in the preliminary report. That of Professor Giovanni Dosi clearly defining what innovation is and what is necessary to be innovative. Or Professor Anthony Giddens Structuration Theory. A theory that suggests People, Society and Organizations move in lockstep, or failure will occur. I think we clearly see the current demands of society and people being ignored by organizations. Although no failure has occurred, one does not have to look too far. And Professor Wanda Orlikowski's Model of Structuration which suggests technology is a defining and reinforcing component of society. A model in which I coined the phrase "SAP is the bureaucracy".

The subsequent discovery of Professor Richard Langlois research on Transaction Cost Economics, The Boundaries of the Firm, and Market definitions. Dare I forget McKinsey Consulting's grounding of these theories in the current business environment. That the hypothesis and conclusions are based on this academic foundation prove that the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. At least that is what is proven on paper. As we know the ability to subject a field of study to a paper document provides proof of the concepts contained within the written word. People are still trying to test the theories of Albert Einstien's, theories that he published in the very early 1900's.

Professor Thomas Davenport has also contributed to this research. His blog (his feed ) is frequently highlighted for some of the current thinking he has in business today. In the preliminary report I quoted him from "Strategy and Structure of Firms in the Attention Economy" stating;

Strategy and structure are mental constructs, important not in themselves, but for their impact on people in the organization. Strategy and Structure are also the vehicles for focusing attention. p. 51

But what tangible proof is there that these hypothesis, conclusions, research and concepts are valid? I sarcastically suggest two alternatives;

1. We continue the debate of these "theories" with industry for another five years.
2. We begin building the systems based on these concepts.

I naturally conclude that point two is the choice I would recommend. Producers are being allocated the financial resources to fuel the innovation that commodity markets are demanding. Since these financial resource's are being distributed to managements pockets, I ask what's the risk?

Still not satisfied? I suggest that you select the "Call-to-Action" label of the blog to review the 45 posts that provide even more grounding for these theories validity. Or, review the Draft Specification for this software development and see how fundamentally different and capable the JOC is to enabling innovation in the oil and gas industry. I have also posted the Preliminary Research Report on Innovation Within Oil and Gas in three knol pages here, here and here.(Editing not complete.)

Lastly, please join me here.

Technorati Tags: People's Research Call-to-Action Plurality Strategy

Filthy Rich Clients

Sun Microsystems have released the "Preview SDK of JavaFX". This is Sun's response to the various development frameworks involved in web based user interfaces. Microsoft's Silverlight, Adobe Flash, and other rich media application frameworks. These frameworks are able to provide what is expected by users when they demand Rich Internet Applications. The best video on the site is SunEVP Rich Green demoing many of the capabilities of this addition to the Java language. (No Link)

JavaFX provides audio, video, 2D and 3D rendering on the Java Virtual Machine (JVM). JavaFX provides developers, designers and users with the ability to have the most visually rich interfaces to their applications. In my opinion this is one of the most important developments to the Java language. That is for a variety of reasons but for users of oil and gas ERP styled systems such as People, Ideas & Objects, rich media is critically important.

Just as no one would provide a green screen textual interface to a user today. The time has come for users to demand much more from their systems interface. More information about the actions that are happening of the users interest. What do I mean? Providing subtle hints in audio, visual and textual clues that certain actions are starting, running or completing. Maybe a user is in the Analytic & Statistics Module and wants to know when a complex algorithm is finished. The information is of critical importance to some urgent work been done by the user for an oil and gas producer. But the user also has over 50 other tasks that are overdue for other producers. The system should provide a subtle, but definitive, indication of when the users attention is required over the noise of the other 50 tasks.

Defining the need for this type of interface in the People, Ideas & Objects application modules is difficult to articulate. What I expect to see through the development of these systems is an iterative increase in the productivity of the oil and gas user. Quantum increases over the performance of today. If man can develop their mechanical leverage of one barrel of oil to offset the labor equivalent of 18,000 man hours. We should be able to achieve similar leverage metrics from an intellectual point of view. As much as computers have enabled our lives and increased the productivity of workers, I am certain that I would have concurrence that we have not attained anywhere close to the 18,000 fold increase in leverage that we should expect from computers.

JavaFX is an important component in implementing the systems interface to the level of these expectations.

Technorati Tags: People's Sun Java Development Architecture

I knew this was the right path.

Were traveling down a dark and unknown path in this software development project. Much of what has to be discovered and learned is determined by feel more then any blueprint or map. I think this project is 100% on target to be successful in making the oil and gas producer execute its plan's faster and more innovatively. Today we have some proof that we are in the right place and time to achieve the success we desire.

Some research was carried out on the Service Oriented Architecture (SOA) type of software delivery model. Click on the title of this entry to be taken to the research web page. This article suggests the odds are against us with only a 20% success rate in the SOA business model. It also provides a guide as to what we are doing correctly. And I think a clear understanding of where we need to move to in order to achieve the success that we are expecting.

What are we doing right;

Failed SOA projects get too focused on the means rather than the end. The failure to focus on business goals is a problem and focusing on them is the solution. There is sometimes a failure to ask the most basic questions in building the business case for SOA. Why should we be building services? What does it mean at the end of the day?... While one of the business drivers for SOA is reducing costs and achieving return on investment (ROI), ROI for SOA remains an elusive goal and SOA project leaders frequently take a leap of faith where ROI is concerned.

People, Ideas & Objects is about identifying and supporting the industry standard Joint Operating Committee (JOC). Aligning of its financial, legal, operational decision making and cultural frameworks with the compliance and governance framework. Compliance and governance being the sole domain of the bureaucracy, the separation of operational decision making and compliance and governance is a recipe for disaster. Nonetheless, the stated objective of this software development project is to enable;

"This community, using this software in their own service business offering, will be the method and means that the oil and gas producer will conduct its most profitable commercial operations."

This is not about the technology. It is not about project management. Although this project uses these two disciplines to achieve the stated objective. This is about getting the business of the oil and gas producer in alignment with the rapidly changing earth sciences and engineering disciplines. This alignment facilitates innovation and enables the oil and gas producer to keep pace with the changes in the underlying sciences.

and

1. Business and IT reorganization, usually with a new CIO coming on board
2. Sponsorship at the C-level or by the Board of Directors
3. Agile/iterative development methodologies put into place
4. Projects tied to and measured by business goals, not IT drivers
5. Well-defined funding and maintenance models that balance the needs of service providers and consumers
6. A simplified architecture, making it easier to access and manage quality data
7. A culture of trust between business and IT

Here we have a mixture of opportunities and problems. Item #'s 3, 4, and 6 are in place in my opinion. Item # 1, 2, 5, and 7 are hitting on the one area that has caused this project to struggle, money and trust. This may be a short term problem as the community involved in this software development continues its logarithmic growth in the U.S. I fundamentally mis-trust the companies I highlighted in my review of stock based compensation. These little piggies attempt to steal this project from me during September 2003 and April 2004 has left a bad taste in my mouth. As such I will not miss them. I however am willing to fully participate with the U.S. and British based industries and any other region that wishes to participate. We have much to do, and as you may have guessed, I have a driving passion for this project.

With that in mind I am frankly grateful for this next set of recommendations.

• Define the business cases clearly. If you can’t, don’t do SOA
• Empower those who need to drive the systemic change that SOA requires, typically, with the money and the authority to do something. Else, don’t bother. You need to control the money and be able to fire people if this is to work in a reasonable amount of time. Otherwise, you’re in endless meetings with people who have agendas that don’t include rebuilding the architecture for agility and reuse.
• Think long term and strategic, not short term and tactical. It’s okay; things won’t collapse as you move from a reactive to a proactive mode. Indeed, that’s how companies win their markets.
• Start small, but keep the momentum going. Small battles win the war, and little by little the architecture will get better if you just keep moving the ball forward

I have a fear of the issue that these points intimate. We don't need to follow any blind bunny trails and desperately need to keep the focus and tract of development in-line with the needs of the producers. However, we need the resources to build this project. If as I suggested a few weeks ago the scope of this project might be in the billion dollar range, over probably four years. The smooth application of the financial resources over the life of the project is the obligation of the collective group of project sponsors. This project needs to be managed on a basis that delivers the application with these constraints and difficulties in mind. This I will diligently work toward.

Which leads me to reiterate the value proposition of this software development project. The costs of development are allocated to the producers on a "per barrel of oil / day" basis. These costs are incurred plus a percentage of those costs for the project. The costs therefore are a small percentage of what the license costs of SAP or Oracle. Once the project is released in a commercial offering the costs of supporting and further developments will be handled on the same basis.

This article brings out another point that was assumed but never identified or communicated. The SOA model within an oil and gas company doesn't provide the value an industry focused SOA solution does. Does this mean an SOA denotes that it is an industry focused solution? I think it does and it seems this research indicates that conclusion may be valid.

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But can this project scale?

Many people look at a start-up such as this project and say, it'll never work, they can't scale. I look at the existing infrastructure of SAP and Oracle and say, it'll never work, too much code and too many customers. How's that for different points of view.

The constraints of organizations are quickly becoming the impediment to growth. That is by removing the constraints, growth will accelerate. Look at what has happened in the technology marketplace in the last ten years. Apple reacquainted itself with Steve Jobs and restarted the organization essentially from scratch. New designs, new processors, new operating system with 5 major upgrades, invented the iPod, iPhone and who knows what else exists in the man's mind. It's now 3 times the size of Dell.

Google has started as two PhD students with some fancy search algorithms. Ten years later they have built one of the most prolific cloud based product producers. And Microsoft continues to spawn vaporware in every product category as a means to sew Fear, Uncertainty and Doubt (FUD). The performance of the start-ups in the last ten years vs. the industry behemoths has created more value then the behemoths have lost.

Sun Microsystems have two projects Project Hydrazine and Project Caroline. There is a very informative (technical) podcast that you can listen to on Project Hydrazine here. These two projects provide People, Ideas & Objects with the ability to scale better then SAP and Oracle.

Lets look at the Draft Specification - Security & Access Control Module of the People, Ideas & Objects application. This module uses the Federated Identity products of Sun Microsystems. (I recommend you watch the four minute video with the perspective of a JOC in the forefront of your mind.) I take these tried and true applications and implement them in what I believe to be the greatest level of security and user friendliness. I do this development on Project Hydrazine and then deploy it their as well. Suddenly the users of this application have a state of the art Security & Access Control module capability. I provide the major accounting firms with the necessary access for compliance and boom, the job is done.

Well maybe not that easy, but far easier then the two ERP vendors I mentioned earlier. They have a lot invested in their code. They can't, and won't, throw that code where it belongs, even it is not up to the quality necessary for compliance. The reason they don't want to change is that it will take them the better part of this century to change the user base over to the better product. Constraints of code and customers for a software firm are the impediments of growth. I'm certainly pleased that I have neither code or customers at this point in time.

And that is the point. When I do commit to the code, it will have to be in such a fashion that I am not undertaking a huge infrastructure that needs to be built to support it. I hire Sun through Project Hydrazine to deploy the application and run it on their servers. I think they know a few things about that, and they sure are motivated to be the best.

So can this project scale? You tell me. And don't tell anyone but I feel like I'm cheating.

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The Draft Specification has moved.

I have moved the Draft Specification from the old wiki to two Knol pages. The Draft Specification is no longer accessible from the wiki. The first part is here and the second part is here. Knol makes it much easier to read and navigate.

Most of the text has been edited, Modules like the Security & Access Control are being rewritten and / or heavily edited so check back frequently for new information.

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In a word, Whiplash.

U.S. Energy Secretary James R. Schlesinger (1977 - 1979) once stated that energy is framed by two emotions, complacency and fear. There is an air of complacency since the oil price has fallen over $20. How distant the problems of earlier this month seem. It almost makes sense to fill the tank again.

How much of this price change is the result of the inventory builds in the U.S. is unknown at this time. Over the past two weeks we have seen exceptionally large builds as it is rumored that U.S. consumption dropped substantially. The two weeks of inventory build was preceded by an unusually large draw down of inventories the week before. I hope this is a sign of the effect of higher prices on consumer demand, but I think we may also be in for a bit of a surprise.

In Supply Chain Management there is a phenomenon known as whiplash. It is an appropriate phrase as the analogy to whiplash is appropriate. You learn the intricacies of this phenomenon by conducting a simulation of a beer supply chain. The retailer, distributor, warehouse and brewery are each represented by four individuals. The objective is to keep the appropriate amount of beer in stock to satisfy your companies needs.

Starting off the game with minimal supply in each location you begin by passing information confidentially from one area of the chain to the immediate neighbors. What happens is as the supply demands fluctuate the effect on inventory begins to switch between the two extremes. One moment you have an excess, which reduces your next order, then you are faced with a draw down of inventory and the supply never recovers. The phenomenon once it is in the supply chain is very difficult to remove. The variance in inventory at all four locations are providing absolutely useless information.

If as I suspect, whiplash has entered the U.S. inventory of energy, then we may see the resumption of demand and a significant draw down in inventory. Leading to price increases and so on...

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The End of IT As We Know it

Click on the title of this entry to view an interesting Sun Microsystems Net Talk that was produced in October 2007. It has some interesting statistics and opinions on where the Information Technologies (IT) are headed.

For instance, the number of people that Sun employs is 34,500 and over 25,000 of those are not assigned a permanent office or working environment. Many work from home or work occasionally in meeting rooms. This is how I see most industries operating and particularly the oil and gas industry. The mandatory attendance in your office from 8:00 to 5:00 will change to a more flexible schedule. The oil and gas industry operates 24 hours a day and this will be reflected in people's schedules. Another reason will be the time zone changes in the area of operations of the producer. Fuel costs on the daily commute may also become a primary reason for this change.

Java has 6 million developers. One for every thousand people in the world. Java has been the number one programming language for a number of years so this is not surprising. The ability to source the numbers of developers that are necessary for this project should, as a result, be easily accommodated.

Other comments in the presentation were around the concept of the "Enterprise computing in the open network." The costs associated for each company to build the appropriate data-center for their needs is quickly outstripping what is reasonable from a cost point of view. The reason is the demand for processing during peak loads is causing the companies to source additional processing capabilities. This is the beginning of a trend that is discussed in this video. A trend that is the reasoning behind Sun making the claim that a firm will have 100% of its processing, applications and networks provided by service providers. This is also the basic assumption in the People, Ideas & Objects application.

In oil and gas having the hardware, applications and network in-house does not provide any competitive advantage. The innovative producer has the land base and physical assets augmented by their understanding and application of earth sciences and engineering capabilities. IT is a cost that is best handled on a service basis. And as the Net Talk points out, services hosted by providers on the Internet. The presenter, Bob Worrall, Sun's CIO points out that this trend will be the end of the traditional Intranet and Data-center. The role of IT within the firm will involve aggregating the relevant services and distributing them. IT will be involved in management of the service providers.

An area that Sun is addressing at this point in time is the area of access control and security. You can watch a good summary provided by Craig MacDonald. Sun Federated Identity is a component of the first module in the People, Ideas & Objects, the Draft Security & Access Control Module. A module in which we are layering the Military Command & Control Metaphor over the Joint Operating Committee participants and those that work for them. This module provides access to the IT resources necessary for People to do their jobs. Providing the producer with access and assurance that data and information are provided to only users that are authorized. This area is a key differentiating point of all other systems providers and the key reason that I have used Sun Products exclusively in the Security & Access Control Module.

Sun suggests that billing is the issue or impediment to full deployment of this changed IT environment. It is difficult to quantify and value every transaction in a service level offering. What I think is needed is an overall service that is billed, based on the size of the producer, that covers the associated costs that are incurred by People, Ideas & Objects in providing that service. This will have to be something that is discussed when we move toward the deployment of this application.

On a related theme, Cisco has a number of videos on YouTube about their new "Tele-Presence" product. Although expensive in comparison to video chat, I think Cisco has identified a market here. When you have large numbers of people needing to sit down in a meeting on a regular basis, the services of Tele -Presence would help in facilitating that communication. Although costly from the point of view of an unproven technology, I think it may pay for itself in reducing flight and accommodation costs, and increase productivity through better communications. Have a look.

Cisco Tele-Presence

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McKinsey Managing Capital Projects.

This is number 38 of the long list of McKinsey articles. They are clearly making the organizational implications of Information and Communication Technologies (ICT) their specialty. Nonetheless this article talks about the managing of capital projects in the oil and gas industry. In the Draft Specification there are many new and innovative ways that capital expenditures are handled. A few key points are;

1.  Petroleum Lease Marketplace - The aggregation of the producers five year capital expenditure budget by geographical area. Such that suppliers and vendors can see where the industry is headed in terms of their needs. Providing the supplier with a window on the producers long term needs. 
2. Accounting Voucher - The best description of this module is that we are moving away from people managing the processes of transactions. And taking the higher level work of designing transactions. Tactical Project Management is the area within the Accounting Voucher module that handles these.
3. Compliance & Governance Module - This is where for a variety of reasons the Strategic-Project Management function is managed.

These modules work together to provide the tools for the industry. Both producers and suppliers, will work together on determining the project size, sourcing and tactical project management of the overall industry resources needed to satisfy the producers needs.

One criticism of the industry is that they overuse a handful of suppliers, and under use the rest. In essence they are holding a higher expectation of performance from their primary suppliers and the rest satisfy themselves on the bits left over. This has led the industry to the current situation where the volume of work being done exceeds the capability of the service industry. What is needed is a different approach. One in which the producers work to increase the overall capacity of the service industry. Then they will be able to effectively deal with the cost overruns and scheduling delays.

In the Draft Specification the modules mentioned provide the opportunity for the producer to plan the contract with the supplier and work with them to offset their weaknesses and build on their strengths. The majority of this transaction design is done through the Joint Operating Committee, as it is the "market" definition in this software application. In the McKinsey article this is the focus of the discussion and therefore lets begin.

Subtitled "Investments in capital projects is rising. First-rate contracting will help companies to get a leg up on their rivals." With most people consider the energy industry needs to invest up to $20 trillion in capital expenditures in order to meet the markets demand for energy. I don't think there is any doubt that the current state of capabilities of the companies is unable to approach even today's capital expenditure volume. Chronic cost overruns and project delays are symptoms of the low level of capability. Commodity prices have adjusted to make the investments profitable. Things need to change from an organizational point of view and the producers need to undertake a greater Project Management capability, and, begin working with the suppliers more closely in terms of developing their capacities and capabilities. McKinsey reflects on the issue;

Many of these undertakings are larger and more technological complex then ever. The result is heated competition for the basic materials, equipment and talent that all asset-intensive industries need to deliver multi-billion-dollar capital projects successfully. p. 1

and

Many asset owners are however struggling. Some companies approach every capital project as an isolated, individually tailored undertaking and fail to align the contracting efforts of individual project teams with their long term capital strategy. Others hastily lock themselves into agreements; choose inappropriate contracting models; or misjudge the risks, organizational resources, or skills that capital projects involve. Such mistakes generate missed opportunities, significant delays, and cost overruns in the hundreds of millions of dollars. p. 1

As is the case in many industries today the advanced economies have the additional problem of aging infrastructure. China and India are able to build with modern more efficient methods unconstrained by "the way it's done". The advanced economies infrastructure is rusting, as Matthew Simmons suggests, and will compete for the capital of the producer companies. Add to it the largest regulation and engineering requirements and you have a situation that's complexity is not being addressed by the producers current capabilities. In addition, McKinsey notes, that capital expenditures of all industries will increase from $54 Trillion in 2002 - 2007 to $71 Trillion in 2008 - 2013. Demand for the skills that are currently in short supply must be developed by the industry itself. Blaming the cost overruns on the service industry is the wrong approach.

Two of the biggest problems that I deal with in this project is how to break the mindset of the user and developers from what are called the motivational and cognitive paradoxes. These two paradoxes were discussed in the preliminary research report and are derived from the work of Sir AnthonyGiddens. Professor Professor Wanda Orlikowski defined them as follows;

"Based on extensive studies of user's experience with word processors, Carroll and Rosson (1988) identified two significant paradoxes; The motivational paradox arises from the production bias. That is, users lack the time to learn new applications due to the overwhelming concern for throughput. Their work is hampered by this lack of learning, and consequently productivity suffers. The cognitive paradox has its root in the assimilation bias. People tend to apply what they already know in coping with new situations, and can be bound by the irrelevant and misleading similarities between the old and new situations. This can prevent people from learning and applying new and more effective solutions." (Cox, Delisle 2003)

In other words change is not in our genes and clearly change is in the cards. I believe that systems are a big part of breaking these things down. If we use SAP we are constrained by the views of the developers who made that application for GM. If we ask the users what it is they do and in turn learn the entire scope of the industry understanding and apply that to the development process I think we have a chance of approaching the issues that McKinsey states in this article.

Heightened competition can increase the damage caused by poor decisions and, in some cases, make them more likely. p. 3

We see this phenomenon playing itself out in the tar-sands of Alberta. Too many producers attempting to do too many things all at once. The result is heightened competition, cost overruns and systemic project delays. These projects have a remaining work in progress capital budget of another $200 billion. If the industry is to achieve the level of market demand for energy it must approach this capital spending problem before the brain trust retires.

Another definition of the same problem is provided by McKinsey;

Meanwhile cultural factors -- notably many asset owners' strong focus on engineering -- shape an environment that doesn't value commercial skills highly. p. 3

This is an oil and gas business that is generally operated by the earth scientists and engineers. Commercial criteria don't necessarily get considered as McKinsey states;

At one industrial company, for instance, engineers defined the parameters for a new plant so narrowly that a critical piece of equipment could be obtained from only 2 suppliers rather than the 50 that might have been possible with a more sensible approach. p. 4

The solution that I propose to this problem is contained within the modular Draft Specification. Designing transactions to consider the elements that McKinsey raises in this article is the area where much of the research that was done in defining the Draft Specification. Professor Richard Langlois' research in understanding the component costs of transactions helps to understand where the costs of transactions occur. McKinsey addresses the same issue with a recommendation of three methods.

   1. Creating optimal delivery models for their deal.
   2. Orchestrating contract-award processes to ensure strong competition among the suppliers.
   3. Structuring supplier contracts to align the suppliers' incentives with their own. p. 5

These issues are projected to become critical in the next five to ten years as the brain trust of the industry retires. I have suggested, and defined within the Draft Specifications, that companies can no longer afford to build individual silos of capacity and capabilities within each firm. Companies need to pool their resources and talent through the cultural form of the Joint Operating Committee. Doing so will enhance the industries overall capability by reducing the duplication inherent in the development of each silo'd company.

With the demand for project management skills developing as noted in this article. It would seem prudent to ensure that the right approach be taken. The oil and gas industry is currently suffering with project delays and cost overruns. I would assert that they are not pursuing all the areas that need to be addressed due to shortages in these areas. It seem unreasonable in this day and age that the ability to expand the capabilities of the industry doesn't include organizational design and systems development. Join me here.

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New Institutional Economics, A Guidebook.

This may become mandatory reading for the users of this software development project. That's all that I can say after I read the table of contents of this book. (Click on the title of this entry to go to the editors website.)  I can't wait until its published. (Some time in August.)  In fact I think I will buy one for each of the users that are signed up for this development.  Just reading the chapters makes me drool. Here is the introduction from the editors website.

Institutions are today recognized as the main drivers of differences of performances among industries, nations, and regions. Thanks to Ronald Coase, Douglas North and Olivier Williamson, New Institutional Economics has been developing a comprehensive and consistent knowledge about the infrastructures required for the performance of an economy. The field is burgeoning with researches on firms’ organizational strategies, the reshaping of industries, the design of markets, alliances and networks to manage innovations, the interplay between private self-regulation and public ordering, the performances of alternative legal systems, the respective role of formal (e.g. legal) and informal (e.g. beliefs, customs) institutions, the design of political and constitutional systems, the management of reforms, development and transition policies, etc.

and

To carry out such a program, multi-disciplinarity stimulates cross-fertilization among political sciences, anthropology, sociology, management sciences, law, and economics. The goal of this book is to provide theoreticians, practitioners and advanced students in economics and social sciences with a guide to reconcile these many developments and better grasp the underlying methodologies. Based on contribution of recognized scholars, it draws a synthesis of the current knowledge and identifies the most relevant questions to be explored.

Kind of makes you feel we are on to something here.

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Something's not right.

As expected Encana announced their second quarter earnings. I'm having problems reconciling what my expectations were with what is reported. These are the points that I can't resolve.

Earnings were down slightly on higher revenue from prices and some production increase. Revenue was up 37% over the first quarter. The first quarter recorded a $1 Billion hit to revenue reflecting the losses from their derivatives. If prices are up, why would the second quarter hit for derivatives be only 25% of what was recorded in the first quarter. For Encana to experience a 37% increase in revenues would require them to experience a 62% increase on the 60% of production that is not covered by the derivatives contracts. How did the company experience that?

Secondly, the amount of text that is written about the actions of derivatives trading is voluminous. Pages of notes detailing in every conceivable table the present situation. With realized and unrealized losses from derivatives trading. What is however different here is that the financial statement treatment between the first quarter and second quarter, for derivatives is changed. The first quarter has the $1 Billion hit from derivatives listed as an offset to revenue. In the second quarter that is changed with a note to the statements that the change in reporting is due to the splitting of the company in two in December 2008. A split that has not been approved by the shareholders. And a cryptic comment that the derivative losses when realized would be allocated to the appropriate operation.

I don't honestly understand the situation that I detailed here. I used an average gas price of $11.00 for the quarter. Encana experienced gas prices of $10.93. The derivative loss for each unit of gas is $2.53. Calculating that on 1.6 BCF / day for 91 days production is $368 million not including the royalty effect. For the oil derivative on 23,000 bbls / day for 91 days at $70 equals another $105 million. The royalty effect is only on gas and that would have added another $103 million for an overall total of $576 million just for the second quarter.

It was my assumption, maybe incorrectly that the mark to market required the calculation for the remainder of the derivative contract. Why would you continue to mark to market the second half of 2008 on the basis of the contract price when the market price is so much higher?

It is of course always possible that I am incorrect in my calculations. I don't have enough information to fully reconcile the effect on earnings but I will certainly keep my eye on it.

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Business users.

I recently commented in a number of posts how developers and users need to communicate more effectively during the software development process. I suggested that Users may want to have a look at some of the tools that are available today and highlighted a series of videos on "Eclipse day at Google". I also commented that the developers may want to consider their NetBeans tool set to include some tools for enhancing the communications with users.

Business rules, data models, UML and XML make for a very precise definition of the business. However, to the business user these are very abstract representations of the business and there is so much more to what they do in their jobs. I think the business user needs to understand the Java Language to the level where they are thinking of their problems in Java and then can relate them to the developer. I think the developer needs to understand that an innovative and change oriented business needs to have development work done on a constant basis.

Making a comment on Geertjan's blog reflected well the attitude of the developers and how difficult a task this may be. I feel this is a serious problem. Users and developers in a distributed development project, as big as this project is, are going to need as much help as possible. I would go as far as to say that bridging this gap may be one of the next frontiers in developer productivity.

Then along came Anne. Anne Botha has picked up the topic of how difficult the current environment is for the business user. A developer by trade Anne tried a few jobs in which she became the prototypical "business user". Her writing is very frank, interesting and comical about this subject. She is writing 10 articles about her undercover adventures and I think she is defining this problem very eloquently in her first two posts. If you want to subscribe to her writing it is a little difficult as I don't think she has her own blog, and is posting the series at DZone. Her first two articles are here and here. Very informative and good entertainment.

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Langlois on Dosi and Lazonick

An interesting debate has begun between Professor Giovanni Dosi and Professor Richard N. Langlois. Dosi's 1988 "Sources, Procedures and Micro-economic Effects of Innovation" was the key document I used in the preliminary research report. Professor Richard N. Langlois has taken up the majority of writing and thinking on changes in business' organizational structure which was used in defining the Draft Specification.

Professor Dosi, Alfonso Gambardella, Marco Grazzi, and Luigi Orsonigo submitted a new paper a few weeks ago entitled Capitalism and Society. I have reviewed the paper and found nothing of real interest in it. It suggests that the large organizations have not been impacted by Information Technologies. A very provocative research topic but one that I think is limited in its scope. The research is based on a review of Italian and French firms. I am certain that there is not a substantial amount that can be related to the rest of the world. Old Europe doesn't change, they have the same firms occupying the top wrung of the corporate latter for over 50 years. Nothing changes much there.

Nonetheless much of the underlying premise for Dosi et al's research was based on Professor Langlois research, and specifically his paper entitled "The Vanishing Hand". This was a document that I reviewed here. Professor Langlois writes a response to Dosi et al that helps to clarify his position in writing about the boundaries of the firm and organizational change. Here is the focus of the discussion.

The Dosi et al. paper takes issue with the Langloisian point of view. The authors adduce statistical evidence on changes in the size‐distribution of firms and industrial concentration in the advanced economies over the past few decades that contradicts the notion that there has been a significant movement toward market coordination of the advanced economies. They argue that, if anything, organizational complexity has become greater in the ICT age, requiring industrial enterprises to engage in more, not less, organizational interactions, as distinct from market interactions. Indeed, they raise the possibility that organizational complexity, and hence the challenges for the visible hand of managerial coordination, may be greater across vertically specialized firms in the New Economy than it was within the vertically integrated firms of the Old Economy. (Lazonick 2008, p. 1.) p. 1

Nonetheless this is a finding that challenges Langlois' theory and the core underlying thinking of this software development project. I have suggested, and the Draft Specification reflects, that the "market" definition is the Joint Operating Committee (JOC) which imputes the volumes of suppliers and contractors involved in the service businesses, and the producer represents the firm.

Lanlgois cites IBM as his example of how Dosi et al misinterpret him. In the 1960's IBM was able to provide the soup to nuts type of computing experience that purchasers appreciated then. The majority of components were manufactured in-house by IBM. Today the situation has changed significantly as a result of the Information and Communication Technologies (ICT). Yes there are large businesses just as there always will be. However, the methods used to develop products and build them have changed substantially.

As an example I would select Apple which considers themselves to be a software development company. Their competitive advantage is in developing software that is substantially more "user friendly" and functional then other software. When it comes to hardware, Apple has not manufactured a computer for many years. They involve themselves in the design and secure manufacturing capability from other firms that specialize in chips, hard-drives, assembly etc. The iPod and iPhone are similar in that Apple notes on the product that it is designed in California, assembled in China and uses mostly Japanese parts. Therefore Dosi et al's argument that ICT has not changed the make up of firms is incorrect. They are predominately organized around the contract, which denotes clearly that the firm uses the market to attain their competitive advantage.

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

The Draft Specification uses much of Langlois thinking in its overall architecture. The best example I can think of is the use of the producers five year Capital Expenditure budgets. These budgets are aggregated by region and displayed in a fashion that enables the "market" of suppliers, the Schlumbergers, Halliburtons and Joes' Welding to peruse and determine what the producers may need in terms of their future spending. This information in the hands of the market will then enable innovative solutions to be proposed to the producer when the contract is sent out for bidding. Bringing a new capability to the firm with a perspective that is not limited to the firms current quarter.

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These companies don't deserve your respect.

As you can tell they haven't earned mine. They have sat back and done nothing about the markets demand for energy. Economists frequently say that prices tell the markets many things. Today the prices are shouting many things, but these companies management can't, or chose not to here them. They have done nothing other then endow themselves with complacency, inactivity, stock options and retirement benefits. Following the money reveals that they have been richly rewarded for their inactivity.

Faced with the overwhelming facts that I have presented in this web log. And the many proposals I have made to industry on systems supporting the JOC. They have done nothing. 37 McKinsey articles, 26 Articles from Professor Richard Langlois, 45 Calls to Action, publication of a future technical vision, etc. Codifying of all this research into a draft specification of eleven modules. The only response is the comment "not at this time".

The draft specification of eleven modules that are so fundamentally different from what is available today. Fundamentally different in that it sets out a course of action in making the producer companies innovative, increases industry wide capability and addresses many of the key issues facing the industry. But that requires effort on behalf of these companies.

Led by uninspired people with uninspired goals these companies have languished to the point where they are indistinguishable. Royalties are up, another reason to do nothing. They should be preparing for moves into the Beaufort Sea, the Arctic, offshore. Increasing the internal infrastructure necessary to explore. Instead they do the easy targets, the coal bed methane and shale oil. Have they no vision, drive or ambition?

I am unable to convince them of the merits of this research and software development. It's time for the shareholders of these energy companies to show the management the door. Either that or watch their investments wither away through dilution from management, declining reserves and ultimately declining production.

Does anyone believe inaction is the right approach? Are these managements able to foresee the future is different than what I have proposed here. Are they able to provide an alternate vision of how this industry has fundamentally changed? No they haven't. This series of entries showing the extent of the abuse of stock options, should provide you with an understanding that the direction we are traveling is not going to present any new opportunities for the companies or the shareholders that own them. All the opportunities involve stock option compensation and retirement of the fat and lazy management. If you doubt this after reading this series you may have a future in oil and gas management.

And what has my competition provided? SAP has stated that they want the upstream producer to get closer to the customer. Which is the most dramatic example of how SAP does not know anything about the upstream oil and gas business. Oracle is off doing something with the application vendors they purchased and the world is not holding it breath. I wouldn't either.

Sir Anthony Giddens theory of structuration, which was a part of the preliminary research report, states that organizations, society and people need to move in lock step or there will be failure. Society and people want to move ahead, organizations are holding up the show and causing all three to fail.

They have isolated themselves from any form of criticism and pursued their personal strategy of sloth, wealth and retirement at the expense of shareholders and society at large. They appear to me to be shut-ins as opposed to productive members of society. Where is the outrage? Failure is the only way to describe it. Join me here.

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