Train wreck in progress.

Looking at Canadian Natural Resources Limited (CNRL ) from the perspective of Professor Nouriel Roubini

Keep alive zombie banks and zombie corporations with balance sheets and debts that haven't been restructured, as in Japan, and you end up in an L-shaped near-depression.

Canadian Natural Resources Ltd is one of our piggies and my personal favorite. They have done nothing to earn the abusive and hostile position they have taken in the industry. Being a bully helps to identify who your friends are, particularly during the downturns. My comments over the past few months are summarized in this list. 

• Fraudulent financial statements.
  
• Losing key shareholders.
  
• Incomplete Horizon project.
  

Based on those three attributes alone, CNRL qualifies as a Zombie Corporation that Roubini defines. There are many other issues that I have commented on before and they can be read here. What I want to focus on today is CNRL's Fourth Quarter Financial Statements. Or actually the lack of them. They won't be publishing their financials until March 5, 2009! What is this? We've seen Devon Energy and Conoco Phillips report large write downs in their asset values. We've seen the reports of BP, ExxonMobil and Shell. So how come we have to wait so long for CNRL.  

I want to make it clear that the non-publication of completed financial statements is a fraudulent act. As an accountant it is well known that if your peers have issued their statements, everyone will have, more or less, completed theirs. Why has CNRL postponed the publication to March 5, 2009? There is no legitimate reason to not have issued them. The tried and true comment that the Auditors are not finished is no longer valid. Not many companies would be subject to any audit induced changes. More of an issue of pride then practice, Management can interpret and apply the regulations as well as any auditor. 

So why is this an issue. Many people within and outside of the firm know what the financials state. Many will be regulated to not indulge in any trading of the firms shares. Many won't, and that provides a distinct advantage over the other "uninformed" shareholders. This deferral of statutory reporting imputes impropriety, and a lack of fortitude by the management to face the music. I think this firm is on the verge of collapsing and does not want to let the information out. If, as I suspect, they can't make mid-month payroll, they will collapse without the need to publish those disgusting financials they tried to pass off in the prior quarter . As I noted here, those statements took on a spectacular and surreal tone. Making funny revenue adjustments is best left in the hands of the crooks, of which CNRL is obviously ready and willing to join. 

My advice is to dump this companies shares as there is significant downside for any existing shareholder. This will be the first firm in which the market for investors will be able to buy the actual oil and gas properties at auction. Purchasing these assets to start over again with the software and Community of Independent Service Providers discussed in this blog, and referred to as People, Ideas & Objects.

All this and no mention or news of CNRL's heavy oil "Horizon" fiasco. Rest assured the property is one of those that will make it into the history books as one of the greatest boondoggles of an incompetent management. But don't think they can be let off the hook, incompetence is a defense of the truly desperate. These actions will be tried in the U.S. and just like Conrad Black and many others, there will be perp walks and convictions.

Technorati Tags: People's Pig Management Failure Economics

A bit under the weather.

I'm feeling a bit under the weather, I'll be back on Monday the 9th of February 2009.

The executioner is primed.

This headline showed up in the Calgary Herald the toay. It's taken me the better part of a day to refocus;

Brewing shareholder revolt puts Petro-Canada in hot seat.

It's been quiet from the point of view of our Piggies. Although Petro Canada reported losses for the last quarter of 2008. I have been waiting for more information to come in before I post anything. But this news article trumps anything that I could have written.

It seems that I am not the only one that is holding their nose as a result of the smell around here. The shareholders are not pleased either. Listen to this little tidbit.

The integrated oil company’s poor performance has riled its shareholders, including the Ontario Teachers’ Pension Plan, which is said to be preparing a 13D regulatory filing with the U.S. Securities & Exchange Commission. That filing may signal a push for a change of control.

I think I'm going to put my pot on simmer and watch this one develop on its own. I also have a very interesting idea of what I think is happening at CNRL. Something seems to be developing there with the recent dumping of the firm by Fidelity, and now they are not going to report their quarters earnings until March 5, 2009? Conoco Phillips, ($68 billion market cap.) which I think is a bit bigger then CNRL ($18 billion market cap.), accountants have managed to get their financial's out over a week ago. Accountants at CNRL must need more sleep.

Something is seriously wrong at CNRL, and based on my November 10, 2008 suggesting the "questionable" nature of their third quarter report, I sense we're in for a surprise. I'll even give a little hint, it's on the Horizon, so stay tuned.

Technorati Tags: People's Pig Management Failure

Porter on Bloomberg on the Economy

In my original thesis I highlighted the work of Professor Michael Porter of Harvard University. Back in 2004 Porter was decades beyond his heyday of the late 1970's and early 1980's. Writing a number of books with title's like "On Competition" he set the tone for the focus on strategy in business. For some reason he was quiet since that time, however I am beginning to see more of him, particularly in the newer media like blog's and podcasts.

In the appendix to the thesis, under the section entitled "Analysis of the Software Development Industry" I used Porter's Five Forces analytical tool. The five forces consist of:

• Threat of substitute products.
• Rivalry among existing competitors.
• Bargaining power of suppliers.
• Bargaining power of buyers.
• Barriers to entry.

I used this tool to show the weakness of the oil and gas industry dependent software developer, was a fools game. The big suppliers like IBM, SAP and Oracle used the small developer to provide the new ideas, only to toss them aside when the ideas were fully valued in their firms. They also realized that the global scope of the oil and gas industry was approximately as valuable as one major auto manufacturer in terms of revenue. The oil and gas industry focus is not on any major software developers radar. It begs the question why the industries IT groups continue to purchase the SAP and Oracle product suites. No one ever went wrong recommending SAP to a bureaucracy, the perfect symbiotic relationship.

The ultimate substitute to the development of software is the use of human resources to fill in the demand from the business. This relegates people to the mundane jobs that are best handled by computers. The future will see people doing one of two jobs. Those that computers can't do, or physical labor and those that computers can assist in. The higher value added tasks of statistical analysis and decision making.

This analysis and debate also doesn't consider what is necessary from the point of view of what makes the best software, the users. That is why it so important that you join this community. The "Community of Independent Service Providers" are key to the long term sustainability of the People, Ideas & Objects software. The software and services will go hand in hand to making the oil and gas producer profitable. Is it now more important to own the producing oil and gas asset, or is it the software and associated services that make the oil and gas property profitable? That is the question potential members of this community should ask and is indeed the importance of this project.

What does Professor Porter have to say about the economy and business today? He is being interviewed at the World Economic Forum in Davos, Switzerland by Tom Keene of Bloomberg News. Keene asks the Professor what grade the current crop of bank management would be assigned.

"Oh god, this is worse then failing. This is incomplete, this is you don't graduate, this is a catastrophe. This is asleep at the wheel, that's inexcusable."

He also suggests that the source of our current economic difficulties is a result of the lack of leadership and mentoring in the finance industry. Where the wisdom that should have been applied was missing which permitted;

"This is a situation where innovation ran ahead of the capacity of the organization. Innovation ran ahead of the regulatory framework."

We run the same risks in oil and gas. If we continue as we are, the retirement of the brain trust in the energy industry will leave society with similar economic difficulties in the future oil and gas industry. This is doubly dangerous as the industry modus operandi continues to ostracize those with ideas. We need to be working together to build a better and more productive oil and gas industry and heed the call that this current economic situation, brought about the mismanagement by the banks, is indeed innovation running ahead of the regulatory framework.

The remaining part of the interview has Porter discussing the health care situation in the United States. It is particularly interesting that the problems within the health care industry are close to the difficulties in oil and gas. The motivation and misalignment of costs and revenues has the Doctors in the U.S asking if there is something better they could be doing. Porter suggests that organizational changes and innovation will be addressed and is being addressed to resolve these issues.

Technorati Tags: People's Harvard Innovation Strategy

McKinsey Video of Professor Hal Varian

McKinsey continue to impress with this latest video of Professor Hal Varian. He holds the dual role of Google Chief Economist and University of California at Berkeley Professor; and general all around thinker in Silicon Valley. I noticed that McKinsey are at the World Economic Forum in Davos Switzerland. I think it is reasonable to assume they will be heavily stimulated at this key conference and we should expect many more quality ideas to come from them.

This video is entitled "Hal Varian on how the Web challenges managers: Google’s chief economist says executives in wired organizations need a sharper understanding of how technology empowers innovation." Suggesting we are at a point in time where the component parts are now available, or as he suggests "Combinatorial Innovation". The difference between previous periods where component parts became available, today's "bits" of IT based ideas and information are shared without costs and are available to most of the people on the planet. We truly live in interesting times when something so simple is a fact of life, amazing.

Professor Varian quotes Alfred Chandler's seminal work in the 1930's and how the telegraph and railroad had a defining capability in the formation of our modern corporation. I have frequently commented on my frustration with the 2 hour / day ritual of driving to the office and back. Stating this drive was a waste of resources and asking if these same people drove home to make a personal phone call? Professor Varian makes the following comment and its impact on the way in which work will be conducted in the very near future.

Instead of people going to work, the work goes to you. And you can deal with the work at anytime and anyplace with the infrastructure that is in place.

Varian goes on to suggest that the ubiquity and affordability of the Internet will provide for a significant boost in productivity. That knowledge and intellectual property (IP) will be the basis of value. This is wholly consistent with my sense that the future earning power of individuals will be based on the ownership of IP, or more importantly for this community, that People have access to IP.

Noting that IP has been revolutionized by the Internet. Today ideas are published as soon as they are conceived. (At least that is what I am doing here.) This is wholly consistent with the ideas that were used to establish copyright. The act of publication is how the copyrights are earned. Allowing the world to find these ideas and build on them is the net benefit to society. Varian says this revolution is over, with the people willingly publishing and promoting the sharing of ideas.

This video is short, around 10 minutes, but the comments that are made are dramatic in their matter of fact-ness and importance to the work being done in People, Ideas & Objects. Professor Varian looks at the seemingly unimportant transaction. How today we can and do so many more transactions through automation. Also how in the future many things can and will be contracted for, and how the ability to confirm a transaction is carried out appropriately.

Much of the work that went in to defining the Draft Specification was based on my understanding of the oil and gas industry, and the academic research in the area of transactions. This work includes most importantly Professors Richard N. Langlois and Carliss Baldwin. What the Draft Specification is designed to accomplish is what Professor Hal Varian suggests. I think as a result of Langlois' work, we have been able to move from a software system that processes transactions, to include the ability to design transactions with the objective of building value. Processing transactions in a software system is necessary functionality of any system today. The real value will be in the ability to design the transaction in a manner that ensures the value that is possible is attained. And that is one of the many things that makes People, Ideas & Objects different.

Professor Varian suggests that he thinks an area where there is going to be another revolution is in the area of services. The community that forms here is how the energy industry will conduct its operations. Instead of the producers employing people directly, service based organizations will provide the resources for the producers to profitably explore and produce energy. These services will have the software development capability and software tools that are being built here in People, Ideas & Objects. And this "Community of Independent Service Providers" as I have been calling them; will apply those tools in value added services to the producers. None of these services have yet been defined, let alone built. These services are a critical aspect of this software development. Those people that wish to join this community and begin to build this software, and their own associated services should follow this process.

Technorati Tags: People's McKinsey Google Community Video Innovation

Nouriel says the "D" word.

This week we have been able to focus on the community that needs to form here. A community that needs to build the People, Ideas & Objects ERP styled software systems that are desperately needed for the oil and gas industry. Today we have a fairly strong dose of negative economic news, and I submit these latest articles to provide the support for the changes that are needed. If we don't act, we will be in a much more dire situation then we currently find ourselves.

First is Professor Nouriel Roubini states the "D" word. He also states that the five top U.S. Banks are insolvent. Nouriel may be the most famous economist due to his precise calling of this economic decline. Noriel has provided very sound quantitative and qualitative analysis of what is happening economically. Prescribing some of the remedies that are necessary to offset this decline. When he starts using the "D" word, I think it is very serious point. His most recent interview was on Wednesday with Bloomberg News "On the Economy" with Tom Keene at the Davos, Switzerland World Economic Forum. I highly recommend listening.

Next is the earnings of the oil and gas producers. Conoco Phillips fired the first shock in the season by reporting a loss of $31.8 billion for the fiscal 2008 year. Wow, must be a problem there.

Lastly the news comes from Forbes, Occidental Petroleum's Chairman finds that the current pricing structure is inadequate to cover the cost structure.

"The current oil and gas industry cost structure is higher than what the current product prices can support," said Dr. Ray Irani, the company's chairman, who said the company would lower its 2009 capital spending budget to $3.5 billion to protect its returns.

Hm must be a problem there. Just a note, I don't think I will be reporting on any more oil and gas company earnings outside of the Pigs. (CNRL, Nexen, Petro Canada and Encana.) Conoco is a well run firm, however, that is in the context of last centuries performance. The Pigs are deserving to get stuffed and I'll continue on as they release their losses.

The need for this community is evident, and is on display in almost every business article written today. The economic decline is going to get much worse, the oil and gas companies are being questioned with their own survival, and the need for this community to form and get on with the job of building the next generation systems AND organizations is now, please join me here in doing these critical tasks.

Technorati Tags: People's Community Economics Failure Energy

Davos, Switzerland

I have highlighted the writings of Bruce Nussbaum of BusinessWeek magazine on this blog before. Among other things he writes the NussbaumOnDesign weblog, (subscribe to the RSS feed). My previous posts of his are here and here. Since his writing, the topics he covers (Design and Innovation), and the ideas that he raises are valid to this community, I am setting up a label (to aggregate his posts within the Innovation in Oil and Gas weblog) and Technorati tag / URI for Nussbaum (to aggregate posts within all blogs that have been tagged Nussbaum.)

He is in Davos, Switzerland for the annual World Economic Forum. In a series of articles he is metaphorically letting the rubber hit the road. Arguing that the people that are discussing the economic consequences of the current economy are the ones that brought the problems to us, and are not necessarily the people who will be getting us out of this economic mess anytime soon. I highly recommend reading his post here.

A “transformational crisis” is the term used in the opening session of the World Economic Forum by founder Klaus Schwab to describe the state of the global economy today. Institutions are not working, unemployment is soaring and we have to first manage the crisis, then manage a new world post-crisis. (Italics are my emphasis.)

The real critical aspect of his posting is that he suggests the people who are the ones that will be making the transition are not necessarily in attendance, or are relegated to the sidelines at Davos. Nonetheless there are a number of very valid quotations that I would like to highlight.

Rupert Murdoch, Chairman and Chief Executive Officer, News Corporation, USA, and Co-Chair of the Annual Meeting 2009. “Don’t let’s lose sight of what creates wealth; it’s open markets, capitalism and we’ve proved this again and again in last century,” he cautioned.

Werner Wenning, Chairman of the Board of Management, Bayer, Germany, and Co-Chair of the Annual Meeting 2009. “We’re talking about growing populations; we have to address issues of how to secure energy supply and of climate change; we’re also talking a lot about sustainability and returning to the basics of sustainable behaviour.”

Bingo, we are being challenged by so much more then just an economic mess. This is why this community that we are building for the oil and gas industry is so critical. Without the necessary systems being built for the future organization, we will not get anywhere close to this future. Software systems are the glue that make organizations work. Using the Joint Operating Committee in the oil and gas industry is the critical organizational construct of the innovative producer. It is the legal, financial, operational decision making, cultural and communication frameworks of the industry. SAP and Oracle, who define and support the bureaucracy, are able to provide compliance and governance for the SEC, Tax, and Royalty regimes. They DO NOT recognize this critical organization, the JOC, in their software.

Nussbaum in a second posting for today, writes the following highlights from what he has entitled "Fear in Davos"

It’s midnight and I’ve talked with maybe 20 really smart people so far at Davos (yep, very dense population of very smart people at the World Economic Forum) and the consensus is that a deep fear is running through the conference this year. Things could be much worse, is the message.

And,

One senior public European figure told me “First we had the financial crisis. We still have that plus an economic crisis. Now we’re getting both plus a political crisis. This is getting ugly.”

We can chase new ideas around the table for a number of years. We no longer have that time or luxury. Understanding that using the JOC is the real key to innovation in the industry is something that I have been doing for the last 5 years. The idea of using the JOC has been thought through to the point where a total overall vision (the Draft Specification) is ready to be implemented. It details what using the JOC could provide if we built this software. Wasting time thinking of new ways to organize is unnecessary.

Critical to this possibility is the ability of a community to take the Draft Specification and produce a Preliminary Specification. But this community, which is very large and understands what I have been writing about, is ready to move. The oil and gas people in Davos are not the ones that are going to see these changes implemented. It is you the reader of this web log, and the concerned member of the oil and gas industry that belongs in this community, please join me here.

Technorati Tags: People's Nussbaum Change Community Ideas User

Innovation Engines and more.

Booz, Allen, Hamilton and the Aspen Institute hold an annual conference to discuss many issues. The 2008 event is summarized in a document entitled "Harnessing the Power of Ideas" which include two very interesting and pertinent articles to the work we are doing here. These papers deal with energy, innovation and the community based approach.

Innovation Engines: Where Will the Next R & D Breakthroughs Come From?

The article asks the very pertinent question:

Rather as evidenced in the 2007 Strategy + Business study The Customer Connection: The Global Innovation 1000, increased return on investment is directly associated with a market driven, customer focused R & D strategy. Moreover, consumers are participating more directly in innovation and technology development, signaling the innovation landscape may be moving from the top down, Manhattan Project style model to a networked, continuously adapting and evolving "Google Style" approach. Are these developments temporary, or will "innovation engines" continue to change? Are traditional top down models still effective? p. 3

These and other questions are asked in the document but are not answered. More a call for answers. Here I can state unequivocally that the Manhattan Project style would never work in bringing an innovative software development project on-line. Score one for the Google Styled approach.

Megacommunities: Addressing Global Challenges Through Collaborative Networks

This article is right on topic with what is being done here. Defining the People, Ideas & Objects user and developer community as a megacommunity resonates with me. In their "why this matters" section it is stated:

Our increasingly globalized and interconnected world is creating issues too large for one authority to solve alone. The issues we face - environment risks, energy security, climate change, food and drug safety, global health - are so complex and involve such a diverse set of stakeholders that traditional methods of problem solving are ineffectual. In response, we see new types of collaboration emerging. p. 14

More particularly this quote gives me goose bumps.

A megacommunity approach helps create the conditions for translating complex issues into clear solutions. More than a large community of people, megacommunities are collections of organizations whose leaders and members have deliberately come together across national, organizational, and sector boundaries to reach the goals they cannot achieve alone. This tri-sector engagement of similarly concerned organizations focuses on a clearly defined  issue where the vital interests of those organizations converge. A megacommunity focuses an issue so that it is clearly defined but not oversimplified. The issue is scaled, but it maintains its complexity. p. 15

Download the .pdf and use it as a guide to increase your involvement in this megacommunity.

Web 2.0 and Beyond: What Does the Cyber Future Hold?

Discussion of the cloud and its impact is beginning to generate interest and discussion. This article presents some of the issues of web 2.0 technologies from the point of view of speed. I appreciate this discussion and ask, although the pace may be too fast for most of us, what does a bureaucracy do in the face of this viable and developing alternative. From their "Why this matters" section:

Web 2.0, the latest technology trend in computing and communications, is popular slang for a series of dynamic, interactive applications producing new forms of technological and social interaction. The lightening pace of web 2.0 technological innovation and evolution challenges our ability - as individual users, communities (real and virtual), and cultures - to grapple with its immediate and enduring implications. As these technologies increase connectivity, decentralize power, and facilitate mass collaboration, cyberspace presents a formidable dilemma for policy makers: What does the future of cyberspace hold, and how might policymakers shape it? p. 29

Interesting question. What I would suggest the oil and gas investor, the government agencies and particularly the progressive minded producers do, is to get on board and start pulling their weight. There is no control or "shaping" if your not here, no one can hear you.

Fueling the Future: Sustainable Choices for a New Transportation Landscape. and Food, Fuel, and Famine: Will Biofuels Starve Us or Save Us?

And lastly these two articles ask the right types of questions in my mind as to what the future holds in terms of energy production. Those in the oil and gas industry know that the endowment of oil and gas can not be replaced by man made synthetics. This is a very dangerous discussion. One that can cause significant issues in our very near future. We need to realize the most effective way to fuel the future is through a combination of aggressive exploration of the earth sciences and engineering disciplines, and their application in the oil and gas industry. We also need to reduce the amount of energy we consume by more effectively using what we have. Driving to work in the morning is becoming more and more ridiculous by the day. Join me here and lets build systems that will reduce the daily commute to simply logging in to People, Ideas & Objects .

Technorati Tags: People's Innovation Energy Organization Strategy

Users. The 5 w's and how.

Yesterday I highlighted an article from McKinsey regarding the rebels that are needed to overturn the poor non performing bureaucracy. Establishing that one of the objectives that I am trying to meet for 2009 is the recruiting of 100 "users" for extending the Draft Specification into the Preliminary Specification. I thought it might be worthwhile to clearly identify what I think these people will do, and answer some of the questions that may be asked. First of all the community of people that read this blog on a regular basis are here for a reason, and that first and foremost means you may be interested in further exploring what needs to be done and how you could fit into the community.

I want to reiterate the terms of these first 100 individuals by defining what is expected of them and what is required. The first item of business will be to review the process of how they join the community. Special emphasis should be placed on the summary submission of your contribution. This should include how you expect to extend your organization as a key or cornerstone "Community of Independent Service Provider".

Why will these people join?

They know in their hearts that the current system is not working. That the need for the industry to move to a higher level of performance is necessary, and they have ideas that will make a difference.

Who are these people.

People who have worked in oil and gas for at least 5 years. Engineers, earth scientists, administrators, accountants, developers and generalists. People who are from the oil and gas companies, investors in oil and gas, government agencies and the service industries that depend on the energy industry. Anyone who can trace their salary or revenue from the energy industry as a whole. The focus is the Joint Operating Committee and therefore is limited to the up-stream end of the business.

These are people who are looking to establish their own service based offering to the oil and gas producers. This will be developed by using the People, Ideas & Objects software applications they build here, and use to deliver to their client producers. This is a business opportunity to the first 100 individuals that sign up. This is not an exclusive arrangement, it will be offered to everyone that joins the development. It is just these people will be the first 100 and will therefore have access to the knowledge and understanding to establish a service based offering.

Where are these people located.

From all corners of the world. One of the Preliminary Specifications deliver-ables is to determine the geographical scope of the application. I have set the minimum to be North and Central America. However, the demand for this type of application is universal and needs to consider the many voices who are part of the global oil and gas industry.

When are these people needed.

Today! Ideally we should have the full complement of 100 by this time next year. They will then undertake to establish their own guidelines, organization framework and deliver-ables. The scope of their undertaking is to set in motion the minimum required application functionality and process management.

How are these people going to do their job.

I have purposely left the Preliminary Specification as a blank slate. Although I expect the Draft Specification to be used as the initial input, there may be better ideas out there. These should be considered at the earliest possible time. The method that this will be done is through the collaborative environment established through the Google Apps for People, Ideas & Objects. This environment currently has many tools and is more then capable of providing what is necessary for these people to work throughout the world from their office and their home.

That's correct. I don't expect anyone to lose or have to quite their job while they are making this critical investment in the software or their service based offering. All of the activities in the Google Apps for People, Ideas & Objects are encrypted via https. Your boss will only know of your activities if you show them, or they too are members of this community.

What will they be doing.

Assessing what is possible and probable. What is the first commercial release of the application going to need and how will it attain that. What needs to be done in the client producer's to make the application available technically and business wise. In short answering a lot, if not all of the "what" and "how" questions that are needed to be asked before developers start to build the application.

In summary.

I do not expect to be inundated with a flood of initial contributors. However, these people will need to be of a fairly diverse subset of the industry. The need to have a good representation leads to much of the need for the high number. However, it would be up to those to determine how they organize themselves once they are together. Some people who apply may not initially be accepted. This does not preclude anyone from joining in the second round of recruiting. It is important to remember the second round will be a fully sponsored round, where contributions of both the first 100 and subsequent people will be paid for their efforts of working on this software. Industry has been very slow to pay any attention to this project. In other words $0.00 has been the income to date. And if we wait for them to start funding this development, it will be far to late by then. It is assumed by me that the opportunity to establish your service based offering in this initial round will provide tangible monetary results in the very near future. I therefore ask you to please join me here.

Technorati Tags: People's Community Collaboration Development Software

McKinsey on Market Rebels.

I have to say that I like this article, its writer, and the video that is included. (Click on the title of this entry) It has particular value to this community as we begin the process of recruiting members. To start off the opening paragraph states:

Activists who challenge the status quo play a critical but often overlooked role in both promoting and impeding radical business innovation. Their importance stems from the very nature of innovation, which frequently challenges existing interests, norms, values, social practices, and relationships. As a result, the joined hands of market rebels—activists and their recruits—have with surprising frequency exerted significant influence on market acceptance of breakthrough products and services.

This is more support for the changes prescribed by this community. I would suggest that the size of this community is very large for the type of change that is being prescribed. It is this community that is aware of the problems in oil and gas, aware of the details contained within the Draft Specification, and beginning to be aware of a possible role for themselves within these software developments. It truly is a community of rebels who are well positioned to move to accelerate the needed changes in oil and gas.

With lay-offs beginning in the industry, the demand for this community will begin to accelerate. Our appeal to the oil and gas investor and the government groups, with oil and gas royalties, are beginning. These two identified sources of revenues will soon begin to support the needs of the community and begin to offer an alternative means of employment and operating in the oil and gas industry. Both the software and the associated services of this community will better manage the oil and gas resources compared to the bureaucracy. This article shows that there are difficult roads ahead.

These examples and many others hold valuable lessons for executives pursuing innovation. The costs to consumers of adopting such innovations are high because adopters have to topple existing conventions. Stimulating collective endeavors that initiate social change can be a critical part of reshaping markets.

It has to be asked. Can the oil and gas industry as it exists today change to what is necessary for tomorrow? Will the bureaucracy still be in power in 10 years? These two questions show the future is not going to be met by our current organizations. As we roll into the 2008 annual earnings season. We will find that these companeis have ceased to find new oil and gas reserves and production to meet even last years performance. In some cases, such as Exxon Mobil's in 2007, they lost 10% of their production. Expect to see an acceleration of the production declines during 2008, and even an accelerated further decline in their projections. This communities job is not a luxury or a nice to have, it is a necessary action to ensure that society and people are provided with reasonable volumes of energy for years to come. These firms are failing and will not be around in ten years time based on today's performance.

To do so, companies must understand how market rebels forge a collective identity and mobilize support. Crucial for many activists is articulating a “hot cause,” which arouses emotion and creates a community of members, and relying on “cool mobilization,” which signals the identity of community members while sustaining their commitment. Companies also can boost their odds of harnessing the power of collective action by employing the right tactics, such as emphasizing two-way communication with consumers. Above all, a mind-set shift is needed: managers hoping to foster and encourage the diffusion of radical innovation need to start thinking like insurgents. Those who do so are likely to become more effective at influencing their own organizations too.

One of the objectives I had set out for this year was the recruiting of 100 individuals to take the Draft Specification and develop the Preliminary Specification of the People, Ideas & Objects software application. These "rebels" will be investing their time and capabilities in establishing their own Community of Independent Service Providers to support their use of this software in the producer firms they will represent. These people will be best able to take the ideas in the Draft Specification and determine what is required in terms of the application and the services that need to support it. These people will be defining the oil and gas industry and how it will operate in the future, and how their service based offerings are designed to keep the industry innovative.

Market rebels aren’t Molotov cocktail–throwing World Trade Organization (WTO) opponents. They are groups of individuals who together shape markets through hot causes, which arouse emotions, and through cool mobilization, which allows participants to realize collective identities. Executives that understand the roles and practices of market rebels are more likely to be successful innovation leaders.

Please join me here.

Technorati Tags: People's McKinsey Community Change Failure